2013 SEQUESTRATION

Selected Federal 

Agencies Reduced 

Some Services and 

Investments, While 

Taking Short-Term 

Actions to Mitigate 

Effects

Report to the Chairman, Committee on 

the Budget, House of Representatives

May 2014

GAO-14-452

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-452, a report to the 

Chairman, Committee on the Budget, House 

of Representatives

May 2014

2013 SEQUESTRATION

Selected Federal Agencies Reduced Some Services 

and Investments, While Taking Short-Term Actions to 

Mitigate Effects

Why GAO Did This Study

On March 1, 2013 the President 

ordered a sequestration of $85.3 billion 

across federal government accounts. 

Final appropriations enacted on March 

26, 2013 reduced this amount to $80.5 

billion. Under current law, a 

sequestration of direct spending will 

occur through fiscal year 2024 and 

another sequestration of discretionary 

appropriations could occur in any fiscal 

year through 2021. 

GAO was asked to evaluate how 

agencies prepared for and 

implemented sequestration in fiscal 

year 2013. GAO’s March 2014 report

broadly examined fiscal year 2013 

sequestration at 23 large federal 

agencies. This report examines in 

greater depth: (1) the effects of fiscal 

year 2013 sequestration on the 

operations, performance, or services to 

the public for selected components 

within federal agencies; and (2) how 

those selected components planned 

for and implemented the fiscal year 

2013 sequestration. 

GAO reviewed programs and activities 

operated by four components of 

federal agencies: CBP, CMS, OESE, 

and PIH. GAO selected these case 

studies based on factors such as the 

share of total sequestered funds and 

level of direct services provided to the 

public. GAO also incorporated findings 

from a November 2013 report that 

addressed similar objectives for select 

operations at DOD. GAO’s case study

selections account for about 77 

percent of the total defense funding 

sequestered and 36 percent of the total 

nondefense funding sequestered in 

fiscal year 2013. 

(Continued on following page.)

What GAO Found

Fiscal year 2013 sequestration reduced funding to selected components of 

federal agencies and their program partners—such as state and local 

governments—that assist in carrying out agency missions. As a result, the 

selected components and their partners reduced or delayed some services to the 

public and operations in 2013. For example: 

• Public housing authorities reported providing rental assistance to about 

41,000 fewer very low-income households compared to 2012—a 2.2 percent 

reduction—because the authorities received less program funding from the 

Department of Housing and Urban Development’s Office of Public and Indian 

Housing (PIH). 

• The Department of Health and Human Services’ Centers for Medicare & 

Medicaid Services (CMS) reported reducing the frequency of surveys to 

determine quality of care and compliance with federal standards at 

psychiatric hospitals from once every three years to once every four to five 

years and specialized organ transplant centers from once every three years 

to once every four to six years.

• The Department of Homeland Security’s U.S. Customs and Border 

Protection (CBP) reported that sequestration reductions did not leave them 

with sufficient funds to provide the overtime necessary to fully staff inspection 

booths which resulted in increased average wait times for international 

passengers. From fiscal years 2012 to 2013, wait times increased from 19.7 

minutes to 22.8 minutes at one airport and from 20.9 minutes to 26.8 minutes 

at another.

• School districts GAO spoke with reported that reduced funding from the 

Department of Education’s Office of Elementary and Secondary Education 

(OESE) resulted in less resources for specialists providing extra instruction to 

students and an increase in the average number of students per elementary 

school class. For example, one district reported an average increase of two 

or three students per elementary school class from the prior school year.

• The Department of Defense (DOD) reported that canceled or limited military 

training and readiness activities could increase the number of nondeployable 

units, decrease surge capacity to meet additional requirements with ready 

forces, and lead to skills gaps.

In some cases, program partners reported increasing reliance on other federal, 

state, and local funding sources, where available, to mitigate sequestration’s 

effects on their services to the public. Certain state agencies reported that they 

relied on additional state funds to inspect and investigate health care facilities on 

behalf of CMS. However, in other cases, program partners reported that 

reductions in other funding sources magnified sequestration’s effects on services 

to the public. For example, officials at 7 school districts that receive federal 

education grants reported that sequestration compounded prior-year reductions 

in state funding. View GAO-14-452. For more information, 

contact Michelle Sager at (202) 512-6806 or 

sagerm@gao.gov or Edda Emmanuelli Perez 

at (202) 512-2853 or 

emmanuellipereze@gao.gov
United States Government Accountability Office

What GAO Recommends

GAO is not making new 

recommendations in this report. 

We provided a draft of this product to

the selected case study agencies and 

the Office of Management and Budget 

(OMB) for comment. DHS, Education, 

HHS, and HUD provided technical 

comments that were incorporated, as 

appropriate. OMB did not provide 

comments.

However, GAO found in some cases the effects of sequestration could not be 

isolated from the effects of other changes in funding. For example:

• The effects of the 2 percent sequestration of Medicare payments are difficult 

to quantify due to the challenge of isolating the effects of sequestration from 

other factors that increased or decreased payments to providers, as well as 

possible changes in provider behavior to compensate for the sequestration 

reductions. 

• It is difficult to isolate the specific effects of sequestration on Title I school 

districts because Title I funding typically makes up a small portion of the 

school district’s total funding compared to state and local sources. A district’s 

Title I formula allocation could also be reduced as a result of factors other 

than sequestration.

GAO found that sequestration planning and implementation varied among the 

selected components. In some cases, agencies directed components’ efforts, 

while in others components provided guidance and set priorities for program 

offices. Consistent with GAO’s March 2014 report, officials from all federal 

agency components reported that uncertainty regarding the timing and amount of 

sequestration and technical questions about how to apply sequestration to 

certain complex accounts presented challenges for planning and implementation. 

For example:

• CMS officials had difficulty determining all of the types of provider payments 

that would need to be cut and which funding was subject to special 

sequestration rules.

• According to CBP budget officials, applying sequestration to fee-based 

accounts was more difficult than applying sequestration to other accounts.

In addition, uncertainty surrounding the timing and amount of sequestration 

limited some components’ ability to substantively communicate with program 

partners and recipients, making it difficult for partners to plan and execute their 

budgets during the fiscal year. For example, recipients of Indian Housing Block 

grants from PIH did not receive the full amount of funds until several months into 

the calendar year.

Components that had initiated efficiency efforts prior to sequestration reported 

that they were better positioned to plan for and implement sequestration in fiscal 

year 2013. For example, CMS officials reported that savings from a 2011 

initiative to improve the efficiency of its facility inspections helped the component 

plan for and implement sequestration. 

In reviewing how agencies implemented sequestration, GAO also selected five 

programs, projects, and activities (PPAs) from each of the four nondefense case 

study components based on the specific programs or activities reviewed within 

each component and other factors and found that components complied with the 

provision in the Balanced Budget and Emergency Deficit Control Act of 1985 that 

specifies how PPAs should be identified for the purpose of sequestration.

In cases where officials had some discretion in implementing sequestration 

reductions, components reported that they sought to protect higher priority 

activities, either by using funding flexibilities or modifying or canceling contracts 

or other ongoing activities. For example, within DOD, the military services sought 

to protect training requirements for deployed and next-to-deploy forces by 

canceling or limiting training for forces not preparing to deploy in fiscal year 2014. 

However, for some programs, officials reported having limited options to 

implement sequestration. For example, some of the case study components’ 

largest programs—such as HUD’s Housing Choice Voucher Program and 

Education’s Title I grants—are based on eligibility formulas and the funds are 

disbursed to program partners to provide services to the public. As a result, these 

program partners had to identify specific actions—such as limiting the number of 

housing vouchers issued and increasing classroom size—to absorb the 

reductions and mitigate their effects on the public.
Page i GAO-14-452 2013 Sequestration

Letter 1

Background 6

Sequestration Reduced Selected Federal Components’ Services 

to the Public and Increased Some Partners’ and Recipients’ 

Reliance on Other Funding Sources 9

Federal Components’ Sequestration Planning and Implementation 

Efforts Varied and Were Hindered by Uncertainty and Other 

Challenges 11

Concluding Observations 15

Agency Comments and Our Evaluation 15

Appendix I Fiscal Year 2013 Sequestration at U.S. Customs and Border 

Protection 17

Appendix II Fiscal Year 2013 Sequestration at the Centers for Medicare & 

Medicaid Services 37

Appendix III Fiscal Year 2013 Sequestration at the Office of Elementary and 

Secondary Education 58

Appendix IV Fiscal Year 2013 Sequestration at the Office of Public and Indian 

Housing 72

Appendix V Objectives, Scope, and Methodology 87

Appendix VI Glossary of Budget Terms 95

Appendix VII U.S. Customs and Border Protection Organization Chart and Fiscal 

Year 2013 Funding Levels 100

Contents
Page ii GAO-14-452 2013 Sequestration

Appendix VIII GAO Contacts and Staff Acknowledgments 102

Tables

Table 1: Four Case Studies of Fiscal Year 2013 Sequestration 4

Table 2: U.S. Customs and Border Protection’s Anticipated 

Funding Reductions in Fiscal Year 2013 27

Table 3: Reductions Considered, as of January 2013, by U.S. 

Customs and Border Protection to Meet Sequestration 

Requirements 29

Table 4: Overview of Selected Centers for Medicare & Medicaid 

Services (CMS) Activities 40

Table 5: Overview of Selected Grant Programs Administered by 

OESE 59

Table 6: Allocations of Title I Grant Funding for Fiscal Year 2013 

by District Poverty Rate 61

Table 7: Overview of Selected Public and Indian Housing 

Programs 73

Table 8: Overview of Select Programs, Projects, and Activities 

Traced to Source 93

Table 9: Names of GAO Staff Contributing to Information on 

Selected Components 103

Figures

Figure 1: U.S. Customs and Border Protection Mission and Fiscal 

Year 2013 Sequestered Funding 17

Figure 2: U.S. Customs and Border Protection Organization Chart 

and Fiscal Year 2013 Funding Levels 20

Figure 3: Office of Field Operations COPRA Overtime 

Expenditures during Fiscal Year 2013 34

Figure 4: Centers for Medicare & Medicaid Services Mission and 

Fiscal Year 2013 Sequestered Funding 37

Figure 5: Timeline of CMS Actions Related to Sequestration of 

Medicare Payments and Survey and Certification 56

Figure 6: Office of Elementary and Secondary Education Mission 

and Fiscal Year 2013 Sequestered Funding 58

Figure 7: Percentage of Federally Connected Children in Districts 

Receiving Impact Aid Nationwide in Fiscal Year 2013 62
Page iii GAO-14-452 2013 Sequestration

Figure 8: Office of Public and Indian Housing Mission and Fiscal 

Year 2013 Sequestered Funding 72

Figure 9: Number of Households That Received Rental 

Assistance in the Housing Choice Voucher Program, 

January 2011 to December 2013 76

Abbreviations

AUO Administratively Uncontrollable Overtime

BBEDCA Balanced Budget and Emergency Deficit Control Act

of 1985

BCA Budget Control Act of 2011

BWPMO Balanced Workforce Program Management Office

CBP U.S. Customs and Border Protection

CCSQ Center for Clinical Standards and Quality

CHIP Children’s Health Insurance Program

CLIA clinical laboratory improvement amendments 

CMS Centers for Medicare & Medicaid Services

COPRA Customs Officer Pay Reform Act

CR continuing resolution

DHS Department of Homeland Security

DOD Department of Defense

Education Department of Education

ESEA Elementary and Secondary Education Act of 1965

FEPA Federal Employees Pay Act

FTE full-time equivalent

HCFAC Health Care Fraud and Abuse Control

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

IHBG Indian Housing Block Grant 

IT information technology

Joint Committee Joint Select Committee on Deficit Reduction

LEA local education agency

MAC Medicare Administrative Contractors

Medi-Medi Medicaid Data Match Project

NAHASDA Native American Housing Assistance and SelfDetermination Act of 1996

NAFIS National Association of Federally Impacted Schools

OA Office of Administration 

OESE Office of Elementary and Secondary Education

OFM Office of Financial Management

OFO Office of Field Operations 
Page iv GAO-14-452 2013 Sequestration

OMB Office of Management and Budget 

ONAP Office of Native American Programs 

PACE Program of All-inclusive Care for the Elderly 

PIH Office of Public and Indian Housing

PHA public housing authorities

PPA programs, projects, and activities

PPACA Patient Protection and Affordable Care Act

SFF special focus facility

SMI Federal Supplementary Medical Insurance 

TDHE tribally designated housing entities

USBP U.S. Border Patrol

Voucher Housing Choice Voucher program

ZPIC Zone Program Integrity Contractor

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Page 1 GAO-14-452 2013 Sequestration

441 G St. N.W.

Washington, DC 20548

May 28, 2014

The Honorable Paul Ryan

Chairman

Committee on the Budget

House of Representatives

Dear Mr. Chairman:

In our recent report that broadly examined fiscal year 2013 sequestration 

at 23 of 24 Chief Financial Officers Act agencies,1

This was the first sequestration in more than two decades. The President 

ordered the sequestration on March 1, 2013—5 months into the fiscal 

year—to achieve $85.3 billion in reductions across federal government 

accounts and their subunits, known as programs, projects, and activities 

(PPA). Subsequently, on March 26, 2013, Congress and the President 

enacted the Consolidated and Further Continuing Appropriations Act, 

2013, which reduced the amount of reductions agencies were required to 

achieve to $80.5 billion. The uncertainty over the timing and amount of 

sequestration as well as how to apply sequestration to complex programs 

made it particularly challenging for federal agencies to plan and 

implement the cuts. Under current law, a sequestration of direct spending, 

including Medicare payments, will occur through fiscal year 2024 and 

we found that the 

automatic, across-the-board cancellation of budgetary resources had a 

wide range of effects on federal agency operations and services to the 

public. Agencies reported that sequestration reduced assistance for 

education, housing, and nutrition, as well as grants for health and science 

research and development. Agencies also reported delaying investments 

such as information technology and facilities projects. Some federal 

agencies also reported backlogs and delays as a result of personnel 

actions, such as limiting hiring and furloughing employees.

 1

In March 2014 we reported on the planning, implementation, and effects of sequestration 

at 23 federal agencies. See GAO, 2013 Sequestration: Agencies Reduced Some Services 

and Investments, While Taking Certain Actions to Mitigate Effects, GAO-14-244 

(Washington, D.C.: Mar. 6, 2014). CFO Act agencies are those covered by the Chief 

Financial Officers Act of 1990, as amended. 31 U.S.C. § 901(b). We excluded the 

Department of Veterans Affairs from our report, because its accounts were exempt from 

sequestration. 2 U.S.C. § 905(b).
Page 2 GAO-14-452 2013 Sequestration

another sequestration of discretionary appropriations could occur in any 

fiscal year through 2021.

You asked that we evaluate how agencies prepared for and implemented 

sequestration for fiscal year 2013. This report, which builds on our March 

report, examines in greater depth: (1) the effects of fiscal year 2013 

sequestration on the operations, performance, and services to the public 

for selected components within federal agencies;2

To achieve these objectives, we selected six components within federal 

agencies for case study review. In these case studies, we sought to cover 

a significant share of the sequestered funding, as well as programs with a 

high level of public interaction. We also sought to cover a range of federal 

missions and the different program delivery tools the federal government 

uses to achieve its missions, such as grants, vouchers, contracts, and 

direct services. Based on these criteria, we selected the following 

components:

and (2) how those 

selected components planned and prepared for and implemented fiscal 

year 2013 sequestration.

• the Department of Defense’s (DOD) Operation and Maintenance 

accounts;

• DOD’s Procurement accounts;

• the Department of Education’s (Education) Office of Elementary and 

Secondary Education (OESE);

• the Department of Health and Human Services’ (HHS) Centers for 

Medicare & Medicaid Services (CMS);

• the Department of Homeland Security’s (DHS) U.S. Customs and 

Border Protection (CBP); and

• the Department of Housing and Urban Development’s (HUD) Office of 

Public and Indian Housing (PIH).

Together, our case study selections account for about 77 percent of the 

total defense funding and 36 percent of the total nondefense funding that 

 2

For the purposes of this report, the term “component” refers to an agency, bureau, or 

operating division (e.g., U.S. Customs and Border Protection) within a cabinet-level 

department (e.g., the Department of Homeland Security). When we refer to “agency,” we 

are referring to a cabinet-level department or an independent agency (e.g., the 

Environmental Protection Agency).
Page 3 GAO-14-452 2013 Sequestration

the President ordered to be sequestered on March 1, 2013.3 We reported 

on our review of DOD’s Operation and Maintenance and Procurement 

accounts along with our review of DOD’s Research, Development, Test, 

and Evaluation account separately in November 2013.4 We used the 

results of that work to inform our overall findings for this report. This 

report provides the results of the four remaining case studies, which are 

reported in appendixes I through IV. Within these four nondefense case 

studies, we selected a limited number of programs, activities, or offices

for more in-depth data gathering and analysis. Table 1 provides an 

overview of the four case studies presented in this report and the 

programs and activities within these components selected for more indepth review. We selected these programs and activities based on the 

size of their budget, level of interaction with the public, the availability of 

measurable estimates of the effects of sequestration, and other factors. 

For details on how we selected programs and activities within individual 

case study components, see appendixes I through IV.

 3

The defense spending category consists of budgetary resources in the national defense 

budget function. In addition to the Department of Defense, several other agencies 

received funding classified under the national defense budget function, including the 

Departments of Energy and Homeland Security. The nondefense spending category 

consists of budgetary resources in budget functions other than national defense. 

4

GAO, Sequestration: Observations on the Department of Defense’s Approach in Fiscal 

Year 2013, GAO-14-177R (Washington, D.C.: Nov. 7, 2013).
Page 4 GAO-14-452 2013 Sequestration

Table 1: Four Case Studies of Fiscal Year 2013 Sequestration

Department and component Overview and selected programs and activities

Department of Homeland Security, U.S. 

Customs and Border Protection (CBP)

Our CBP case study focuses on the Office of Field Operations (OFO), U.S. Border Patrol 

(USBP), and certain user fees. CBP officers are responsible for securing the border at 

U.S. ports of entry, while Border Patrol agents are responsible for securing the border 

between ports of entry. We also examined CBP fees for customs inspection, including 

inspection of air passengers and commercial vessel passengers arriving at U.S. ports of 

entry. 

Department of Health and Human 

Services, Centers for Medicare & 

Medicaid Services (CMS)

The CMS case study focuses on Medicare payments, Medicare Administrative 

Contractors (MAC), CMS program integrity, survey and certification including clinical 

laboratory improvement amendments surveys, personnel funds, and state insurance 

exchange grants. Medicare pays health care providers and plans for services provided to 

beneficiaries—primarily individuals age 65 and older and certain individuals with 

disabilities. CMS uses MACs to process Medicare claims, enroll health care providers in 

the Medicare program, and conduct certain program integrity activities, among other 

functions. CMS program integrity aims to reduce fraud in CMS programs and is supported 

by Health Care Fraud and Abuse Control funding. CMS, through contracts with states, 

also oversees inspections of facilities that participate in Medicare and Medicaid to ensure 

safety and compliance with federal standards. Affordable insurance exchange grants are 

awarded to states to implement insurance exchanges for health care reform. If a state 

does not elect to operate an exchange or is not certified or approved to operate one, HHS 

is to operate the exchange in that state.

Department of Education, Office of 

Elementary and Secondary Education 

(OESE) 

The OESE case study focuses on two formula grant programs administered under the 

Elementary and Secondary Education Act of 1965, as amended: Title I and Impact Aid. 

Formula grants are distributed using defined formulas. In the case of Title I and Impact 

Aid, the grant formulas are established by statute. Title I funds are provided through state 

educational agencies to local educational agencies with high concentrations of students 

from low-income families. Impact Aid grants assist school districts that have lost property 

tax revenue due to the presence of tax-exempt federal property or that have experienced 

increased expenditures due to the enrollment of federally-connected children, such as 

children with parents in the military and children living on Indian lands. Impact Aid funds 

are awarded directly to school districts.

Department of Housing and Urban 

Development, Office of Public and Indian 

Housing (PIH) 

The PIH case study focuses on the following programs:

• The Housing Choice Voucher (voucher) Program subsidizes private-market rents for 

low-income households with a subsidy that generally equals the difference between 

the unit’s rent and 30 percent of the household’s income.

• The Public Housing Operating Fund provides subsidies to public housing authorities 

(PHA) to operate and maintain public housing.

• The Indian Housing Block Grant (IHBG) Program provides formula grants to 

federally-recognized Indian tribes or their tribally designated housing entity for a 

range of affordable housing activities.

Source: GAO analysis of agency information.

To assess the effects of sequestration on the selected components, as 

well as how they planned for and implemented sequestration, we 
Page 5 GAO-14-452 2013 Sequestration

reviewed documents obtained during our agency-level review,5

We reviewed supporting documents to assess the reasonableness of 

components’ estimates of the effects of sequestration on operations, 

performance, and services to the public. Specifically, we reviewed the 

data and methodology used to calculate these estimates, and we 

reported the estimates when they met our evidentiary standards. In some 

cases we found it appropriate to report agency estimates, as long as we 

also included significant contextual information and information about 

limitations regarding the estimates. We did not assess the 

appropriateness of actions agencies or components took to implement 

sequestration.

including 

a list of sequestered PPAs, total discretionary and mandatory funding 

levels, and total amount sequestered. We also reviewed additional 

agency documents and analyzed budget and financial data for fiscal year 

2013. We asked agencies to identify the source of any information 

provided and a description of any known limitations or purposes for which 

the data being provided should not be used. In addition, we interviewed 

agency officials from each component, including officials in budget and 

management offices as well as officials in program offices. We asked 

agency officials to isolate the effects of sequestration from other factors 

such as operating under a continuing resolution (CR) and the rescissions 

enacted in the Consolidated and Further Continuing Appropriations Act, 

2013, to the degree possible. We recognize that these other factors could 

also contribute to budget uncertainty and affect components’ operations, 

performance, and services to the public. We also interviewed program 

partners that help carry out some of the selected components’ missions 

by providing services to recipients of federal funding or the general public. 

Program partners for the four selected components include state, local, 

and tribal governments, school districts, and others. We also interviewed 

certain recipients of component support and services or their 

representatives. Appendixes I through IV describe how we selected these 

recipients or representatives.

In reviewing how agencies implemented sequestration, we also examined 

the extent to which selected components identified PPAs in accordance 

with the criteria set out in section 256(k)(2) of the Balanced Budget and 

Emergency Deficit Control Act of 1985 (BBEDCA), as amended. We 

 5

GAO-14-244.
Page 6 GAO-14-452 2013 Sequestration

reviewed a purposeful sample of five PPAs from each of the four 

nondefense components discussed in this report. We traced each of the 

selected PPAs back to the applicable source and conducted follow-up 

interviews with agency officials to further understand how the agency or 

component made its determination, as needed. Because we used a 

nonrandom, purposeful sample, the results of our analysis of the selected 

PPAs cannot be generalized to other PPAs within the component or 

department or to the federal government as a whole.

We conducted our work from April 2013 to May 2014 in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on 

our audit objectives. For additional details on our scope and methodology, 

see appendix V.

The Balanced Budget and Emergency Deficit Control Act of 1985 

(BBEDCA) established sequestration to enforce discretionary spending 

limits and control the deficit. In August 2011, Congress and the President 

enacted the Budget Control Act of 2011 (BCA), amending BBEDCA.6

Among other things, the BCA established the Joint Select Committee on 

Deficit Reduction (Joint Committee), which was tasked with proposing 

legislation to reduce the deficit by $1.2 trillion or more through fiscal year 

2021. The absence of such legislation triggered the sequestration 

process in section 251A of BBEDCA, known as the Joint Committee 

sequestration, which is the subject of this report.7

 6

Pub. L. No. 112-25, 125 Stat. 240 (Aug. 2, 2011). BBEDCA has been amended many 

times, including by the Budget Enforcement Act of 1990, the Statutory Pay-As-You-Go Act 

of 2010, the Budget Control Act of 2011, the American Taxpayer Relief Act of 2012, and 

the Bipartisan Budget Act of 2013. This body of law is classified in sections 900 through 

907d in title 2 of the United States Code.

During fiscal year 2013, 

several laws changed the timing and amount of sequestration. As a result 

of those changes, the President ultimately ordered a sequestration on 

7

The BCA also imposed discretionary spending limits for fiscal years 2012 to 2021 to 

reduce projected spending by about $1 trillion. If the discretionary spending caps are not 

met in a given fiscal year, they will be enforced by an “after session sequestration” within 

15 days after the end of a congressional session. This report focuses on the Joint 

Committee sequestration. 

Background
Page 7 GAO-14-452 2013 Sequestration

March 1, 2013, to achieve $85.3 billion in budget reductions. Consistent 

with BBEDCA, the Office of Management and Budget (OMB) calculated 

the following percentage sequestration reductions based on the funding 

level set by the CR in effect at that time:

• 7.9 percent for defense direct spending,

• 7.8 percent for defense discretionary spending,

• 5.1 percent for nondefense direct spending—other than Medicare 

payments and certain health programs, which are limited to 2 percent 

under BBEDCA, and

• 5 percent for nondefense discretionary spending.8

BBEDCA required that the sequestration reductions ordered on March 1, 

2013, be applied uniformly, across the board, to nonexempt accounts and 

their sub-units, known as PPAs.9 BBEDCA provides that PPAs are 

identified by appropriation acts or accompanying reports for the relevant 

fiscal year or, for accounts not included in appropriation acts, with 

reference to the most recently submitted President’s budget. On March 

26, 2013, Congress and the President enacted the Consolidated and 

Further Continuing Appropriations Act,10 which provided full-year 

appropriations to federal agencies and had the effect of reducing the 

sequestered amount for fiscal year 2013 from $85.3 billion to $80.5 

billion.11

 8

Discretionary appropriations are budgetary resources provided in appropriations acts. By 

contrast, direct spending, often referred to as mandatory spending, consists of budgetary 

resources provided by entitlement authority and laws other than appropriations acts. For a 

glossary of budget terms, see appendix VI. 

The final sequestered amount for fiscal year 2013 is dependent 

on total sequestered amounts for programs that are funded by permanent 

9

In April 2012, we reported on the meaning of PPA under the BCA. See GAO, Agency 

Operations: Agencies Must Continue to Comply with Fiscal Laws Despite the Possibility of 

Sequestration, GAO-12-675T (Washington, D.C.: Apr. 25, 2012).

10Pub. L. No. 113-6, 127 Stat. 198 (Mar. 26, 2013). The Consolidated and Further 

Continuing Appropriations Act also required an across-the-board cancellation of budget 

authority—known as a rescission—to eliminate any amount by which the new budget 

authority provided in the act exceeded the fiscal year 2013 discretionary spending limits. 

Accordingly, OMB calculated a rescission of 0.032 percent for all security PPAs and 0.2 

percent for all nonsecurity PPAs, as well as additional rescissions for specific categories 

of spending that were also required by the act.

11The Consolidated and Further Continuing Appropriations Act reduced the amount of 

sequestration because BBEDCA provides for a reduction to the amount of sequestration 

for accounts funded by discretionary appropriations when the full-year appropriation is 

less than the annualized CR amount minus the sequestration amount. (2 U.S.C. § 903(f)). 
Page 8 GAO-14-452 2013 Sequestration

indefinite budget authority, such as entitlement programs like Medicare 

payments where obligations depend on the number of eligible 

beneficiaries receiving benefits.12

Our March 2014 report found that one of the ways agencies responded to 

sequestration was by using funding flexibilities to mitigate the effects of 

sequestration where available. These funding flexibilities include 

reprogramming and transferring funds and using unobligated balances. 

Reprogramming is the shifting of funds from one program activity to 

another within an appropriation account for purposes other than those 

contemplated at the time of appropriation, while transferring is the shifting 

of funds between appropriation accounts.13 Unobligated balances that 

remain legally available from prior year appropriations could provide 

agencies with funding flexibility to respond to sequestration.14 If a 

multiyear or no-year appropriation is not fully obligated by the end of the 

fiscal year, the unobligated balance may be carried forward into the next 

fiscal year and may remain available for obligation.15

Looking forward, agencies face the prospect of ongoing budget 

constraints as well as the possibility of future sequestrations. BBEDCA 

established discretionary spending limits for both defense and 

nondefense discretionary appropriations for fiscal years 2014 through 

2021. If either defense or nondefense discretionary appropriations exceed 

the limit, sequestration would occur 15 days after the end of the next 

congressional session. The fiscal year 2014 discretionary appropriations 

 12For programs that are funded by permanent indefinite budget authority, OMB calculated 

sequestration using estimated outlays for fiscal years 2013 and 2014. Further, while 

agencies were generally required to implement the cuts by the end of fiscal year 2013, 

sequestration of Medicare payments extends through March 2014. 

13For more information on reprogrammings and transfers, see the glossary of budget 

terms in appendix VI.

14Carryover balances may consist of funds that have not been obligated—known as 

unobligated balances—or obligations for which payment has not been made—known as 

unliquidated obligations—that are carried forward into future fiscal years. We recently 

reported on unobligated balances, see GAO, Budget Issues: Key Questions to Consider 

When Evaluating Balances in Federal Accounts, GAO-13-798 (Washington, D.C.: Sept. 

30, 2013).

15Multiyear appropriations provide budget authority for a fixed period of time in excess of 

one year, while no-year appropriations provide budget authority for an indefinite period of 

time.
Page 9 GAO-14-452 2013 Sequestration

enacted on January 17, 2014, did not exceed defense or nondefense 

spending limits, and therefore did not trigger a sequestration of 

discretionary appropriations. Nonexempt direct spending, including 

Medicare payments, will continue to be sequestered automatically for

fiscal years 2014 through 2024, as it was in fiscal year 2013.16

The selected components and their partners reduced or delayed some 

services to the public and operations in 2013 as a result of sequestration. 

For example, components of federal agencies reported that their actions 

included the following:

• Due in part to personnel actions taken in response to sequestration, 

international passenger wait times for CBP inspections increased at 

some airports, and CBP delayed some air cargo inspections. For 

example, CBP officials reported that sequestration reductions did not 

leave them with sufficient funds to provide the overtime necessary to 

fully staff inspection booths, which resulted in increased average wait 

time for international passengers. From fiscal years 2012 to 2013, 

wait times increased from 19.7 minutes to 22.8 minutes at one airport 

and from 20.9 minutes to 26.8 minutes at another. Meanwhile, officials 

at one CBP field office stated that in some instances, officers could 

not inspect all cargo in the queue during their normal shift, which 

meant that some cargo was not inspected until the next shift began, 

which delayed the release of cargo for shipment.

• CMS reduced the frequency of certain medical facility inspections. For 

example, to implement sequestration reductions, CMS reported 

reducing the frequency of surveys to determine the quality of care and 

compliance with federal standards at psychiatric hospitals from once 

every 3 years to once every 4 to 5 years. Surveys of specialized 

organ transplant centers were reduced from once every 3 years to 

 16Pub. L. No. 113-82, § 1, 128 Stat. 1009 (Feb. 15, 2014). OMB has calculated and is to 

continue to calculate the annual reductions to nonexempt direct spending in its 

sequestration preview reports for fiscal years 2014 to 2024. 2 U.S.C. § 901a. The 

sequestration preview report must be issued the same day as the President’s budget 

submission. 2 U.S.C. § 904. For fiscal year 2014, OMB calculated that defense direct 

spending will be reduced by 9.8 percent and nondefense direct spending will be reduced 

by 7.2 percent. Medicare and certain health programs will be reduced by 2 percent, per 

the limitations in BBEDCA. OMB, OMB Sequestration Preview Report to the President 

and Congress for Fiscal Year 2014 and OMB Report to the Congress on the Joint 

Committee Reductions for Fiscal Year 2014 (May 20, 2013). This corrected previous 

versions of the reports issued on April 10, 2013.

Sequestration 

Reduced Selected 

Federal Components’

Services to the Public 

and Increased Some 

Partners’ and 

Recipients’ Reliance 

on Other Funding 

Sources
Page 10 GAO-14-452 2013 Sequestration

once every 4 to 6 years. We do not know the effect of the reduced 

oversight on patient safety or the quality of care provided by the 

health care facilities.

• Impact Aid and Title I school districts reduced some services to 

students. For example, three of the Impact Aid districts reported 

having to increase class sizes. Officials from one of the districts 

specifically reported an average increase of two or three students per 

elementary school class from the prior school year. Meanwhile, 

officials from one district that received Title I funding told us that the 

loss of funding contributed to the decision to reduce the number of 

reading and math specialists who provide extra instruction to students 

and assist teachers in improving their teaching methods.

• PIH reduced funding for the Housing Choice Voucher program. As a 

result, the number of very low-income households receiving rental 

housing assistance through the program at the end of calendar year 

2013 declined by about 41,000 (2.2 percent) compared to the end of 

calendar year 2012 primarily due to sequestration.

• DOD reduced military training and readiness activities, such as 

canceling or limiting training, which the agency reported could 

increase the number of non-deployable units, decrease surge 

capacity to meet additional requirements with ready forces, and lead 

to skills gaps.

In some instances, the effects of sequestration compounded other 

reductions in federal, state, and local funding sources. Representatives of 

a medical provider association have reported that the 2 percent 

reductions to Medicare payments required by sequestration compounded 

other reductions in payments. Payment reductions can result from the 

annual rate setting process for providers or specific legislative actions. 

Further, all of the seven Title I and Impact Aid school districts we spoke to 

told us that cuts to state funding in prior years had already reduced their 

budgets, which were further cut as a result of sequestration. In other 

cases, program partners supplied resources, where available, to mitigate 

the effects of sequestration. Officials at certain state survey agencies that 

we spoke to, which carry out health care facility safety inspections and 

investigations on behalf of CMS, said they would use additional state 

funds when necessary to compensate for lower federal funding levels and 
Page 11 GAO-14-452 2013 Sequestration

complete high-priority inspections.17

However, we found that in some cases the effects of sequestration were 

unknown because it is difficult to isolate the effects for some programs 

and activities that receive funding from multiple sources. For example, the 

effects of the 2 percent sequestration of Medicare payments are difficult 

to quantify due to difficulty in isolating the effects of sequestration from 

other factors that increased or decreased payments to providers, as well 

as possible changes in provider behavior to compensate for the 

sequestration reductions. Similarly, it is difficult to isolate the specific 

effects of sequestration on Title I school districts because Title I funding 

typically makes up a small portion of the school district’s total funding 

compared to state and local sources. In addition, because of the statutory 

formula for Title I, a reduced Title I allocation could be a result of factors 

other than sequestration, such as decreases in the formula count of 

children or reduced state per pupil expenditures.

Similarly, some PHAs used funding 

reserves accumulated from prior years to avoid terminating housing 

vouchers. In addition, officials at one of the four PHAs we interviewed told 

us their local government provided funding for public housing—which it 

does not usually do—to mitigate the effects of sequestration.

Planning for sequestration varied among the selected federal 

components. Some planning efforts were more centralized and occurred 

primarily at the agency level. For example, OESE and PIH largely 

followed sequestration plans set by Education and HUD, respectively. By 

contrast, CMS planned for sequestration primarily at the component level 

by identifying certain activities as spending priorities, in consultation with 

the HHS budget office. CBP headquarters generally managed planning 

for the required budgetary reductions and delegated implementation 

decisions affecting operations to program offices.

In some cases where sequestration planning primarily occurred at the 

component level, technical questions posed challenges. CMS faced 

technical challenges in applying sequestration in accordance with the law 

 17CMS contracts with and provides federal funding allocations to state survey agencies to 

carry out the majority of survey functions for facilities participating in Medicare and 

Medicaid. States generally rely on their own funds when they spend more than their initial 

federal allocations on survey activities and may be reimbursed when CMS redistributes 

Medicare funds from states that spent less than their allocations.

Federal Components’

Sequestration 

Planning and 

Implementation 

Efforts Varied and 

Were Hindered by 

Uncertainty and Other 

Challenges
Page 12 GAO-14-452 2013 Sequestration

and changing budget parameters. Specifically, CMS had difficulty 

determining all of the types of provider payments that would need to be 

cut and which funding was subject to special sequestration rules. 

Similarly, CBP budget officials told us that applying sequestration to fee 

accounts was more difficult than other accounts due to uncertainty over 

whether fee accounts would be exempt from sequestration, as well as 

uncertainty about how to apply sequestration cuts to fee accounts.

Our March 2014 report similarly found that many agencies faced 

challenges in applying sequestration to certain programs, such as those 

funded through user fees and trust funds.18

In addition, uncertainty surrounding the timing and amount of 

sequestration limited the components’ ability to provide substantive 

communication to its program partners and recipients. For example, CMS 

officials told us that, because sequestration took effect late in the fiscal 

year, it was difficult to provide timely communication to state survey 

agencies that would allow them to adequately plan their budgets. 

Recipients of PIH Indian Housing Block grants told us that uncertainty 

surrounding the fiscal year 2013 federal budget process presented 

challenges because they did not receive the full amount of their grants 

from HUD until several months into the calendar year. These findings are 

consistent with our March 2014 report, which found that uncertainty over 

if and when sequestration would occur limited agencies’ communication 

with stakeholders.

We made two 

recommendations that could help alleviate some of the uncertainty for 

potential future sequestrations. Specifically, we recommended that OMB 

document and make publicly available its decisions regarding how 

sequestration was implemented and issue guidance directing agencies to 

formally document the decisions and principles used to implement 

sequestration for potential future application. OMB agreed with our 

recommendation and plans to publish its criteria used for making 

determinations about how sequestration was implemented in its guidance 

to agencies, OMB Circular No. A-11, Preparation, Submission, and

Execution of the Budget, but did not specify when this guidance would be 

available.

 18GAO-14-244.
Page 13 GAO-14-452 2013 Sequestration

To implement sequestration, federal agencies and components had to 

analyze each budget account separately to determine its PPAs in 

accordance with section 256(k)(2) of BBEDCA. Section 256(k)(2) of 

BBEDCA provides that PPAs shall be identified within the appropriation 

act or accompanying report for the relevant fiscal year covering the 

budget account, or for accounts not included in appropriations acts, as 

delineated within the most recently submitted President’s Budget. We 

reviewed a purposeful, nonrandom sample of five PPAs from each of the 

four nondefense components. We found that agencies complied with the 

criteria set forth in section 256(k)(2) in identifying each of the PPAs in our 

sample.

In some cases, certain program characteristics limited the actions 

available to components for implementing sequestration. Officials from 

OESE and PIH told us that they had few options for implementing 

sequestration because some of their largest programs are based on 

eligibility formulas—established by law in some cases—or the funds are 

disbursed to program partners to fund various services to the public. As a 

result, the component could only achieve the required spending 

reductions by reducing the amount of the funds distributed to eligible 

partners or recipients. Partners and recipients therefore had reduced 

federal funds available for services. For example, eligibility criteria and 

formulas for allocating Title I grant funds are established by law and 

sequestration generally reduced the grant amounts that states and 

eligible school districts would have received absent sequestration.19

Similarly, CMS had little flexibility in applying sequestration cuts to 

Medicare payments because, with few exceptions, under BBEDCA all 

types of Medicare payments were subject to the 2 percent sequestration. 

Therefore, Medicare fee-for-service providers and Medicare Advantage 

and prescription drug plans had to absorb the reduction.20

 19Education officials reported that sequestration caused the fiscal year 2013 Title I 

appropriation to be less than the fiscal year 2012 appropriation, which was a primary 

factor in many states and eligible school districts receiving fewer Title I funds than they 

received from the fiscal year 2012 appropriation.

In addition, 

some agencies had legal mandates that constrained their implementation 

20Medicare Advantage is the private plan alternative to Medicare fee-for-service under 

which private plans provide Medicare benefits to enrolled beneficiaries. Medicare 

prescription drug plans, also operated by private plans, provide the Medicare Part D 

outpatient prescription drug benefit. Medicare pays Medicare Advantage and Medicare 

prescription drug plans a per enrollee amount each month. 
Page 14 GAO-14-452 2013 Sequestration

options. For example, CBP is required to maintain a certain number of 

Border Patrol agents, which limited available personnel actions.21

In cases where officials did have some discretion in applying 

sequestration reductions, components reported that they had to make 

trade-offs to protect higher priority activities in their resource allocation 

decisions. For example, the Border Patrol did not apply the required 

reductions evenly across sectors because operational demands were 

higher in some sectors than others. Further, CMS chose to maintain 

funding for implementation of the federal health insurance exchanges 

despite the reductions. Similarly, within DOD, the military services sought 

to protect training requirements for deployed and next-to-deploy forces. 

To do this, DOD took actions such as canceling or limiting training for 

forces not preparing to deploy in fiscal year 2014. Furthermore, similar to 

our March 2014 report, case study components implemented 

sequestration cuts by, for example, reducing training and travel, reducing 

program management and support services, and rescoping or delaying 

grants.

Previously initiated efficiency efforts helped components absorb some of 

the required reductions. For example, CBP was better positioned for 

sequestration, according to officials, due to efficiencies implemented over 

the past several years in response to declining budgets. Similarly, 

according to CMS officials, an initiative to improve the efficiency of its 

facility inspections that began in 2011 helped CMS plan for the fiscal year 

2013 sequestration.

Consistent with our March 2014 report, we found that actions components 

took to mitigate the effects of sequestration on mission priorities will not 

be available to the same extent, if at all, in future years. Specifically, CBP 

officials told us that it will be more difficult to implement sequestration in 

future years without adverse effects on their missions because actions 

taken in fiscal year 2013—such as reducing funding for equipment and 

fuel—will be difficult to replicate. CMS officials also told us that future cuts 

would be more difficult to implement because, for example, carryover 

balances may not be available to the same extent in future years. 

Similarly, DOD used portions of available unobligated balances from prior 

 21The Consolidated and Further Continuing Appropriations Act, 2013, required CBP to 

maintain 21,370 Border Patrol agents. Pub. L. No. 113-6, div. B, title II, 127 Stat. 198, 345 

(Mar. 26, 2013). 
Page 15 GAO-14-452 2013 Sequestration

years to mitigate fiscal year 2013 sequestration reductions, but the 

agency may have lower prior year unobligated balances available to rely 

on in future years. Further, in some cases program partners, such as 

tribally designated housing entities and PHAs, used funding carried over 

from the previous year or their own reserve funds, but they may have 

fewer of these funds available in future fiscal years.

Sequestration reduced funding for the partners and recipients that carry 

out federal programs, affecting services to the public and federal agency 

operations. These case studies illustrate how some spending reductions 

at the federal level ultimately reduced funding for program partners 

operating at the local level, which resulted in effects such as less frequent 

inspections of certain medical facilities; fewer households receiving 

housing vouchers; and reduced services for students in some school 

districts. In addition, these case studies provide further evidence that the 

uncertainty surrounding the timing and amount of sequestration 

hampered communication with program partners and recipients. This 

uncertainty limited the abilities of states, tribes, and other partners to 

effectively plan to manage their operations with limited resources. OMB’s 

implementation of the recommendations in our March 2014 report would 

facilitate agencies’ planning and implementation for a potential future 

sequestration by documenting federal agencies’ and OMB’s decisions 

and principles for planning for and implementing sequestration. Publicly 

available documentation would allow agencies and their program partners 

and recipients to build institutional knowledge that could better position 

them to implement a potential future sequestration.

Some cost-savings strategies used by components and their program 

partners—such as deferring maintenance for schools, public housing

units, and Border Patrol vehicles—cannot be continued indefinitely. There 

is a limit to agencies’ ability to achieve efficiencies and budget reductions 

by deferring or reducing funding for lower priority activities and agencies 

have limited authority to reprioritize many activities. As we previously 

reported, implementing future budget reductions will likely require 

Congress and the executive branch to reexamine how agencies carry out 

their missions.

We provided a draft of this product to the Secretaries of DHS, Education, 

HHS, and HUD, and the Director, OMB for comment. DHS, Education, 

HHS, and HUD provided technical comments that were incorporated, as 

appropriate. OMB did not provide comments.

Concluding 

Observations

Agency Comments 

and Our Evaluation
Page 16 GAO-14-452 2013 Sequestration

We are sending copies of this report to DHS, Education, HHS, HUD, 

OMB, and other interested parties. In addition, the report will be available 

at no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

Michelle Sager at (202) 512-6806 or sagerm@gao.gov or Edda 

Emmanuelli Perez at (202) 512-2853 or emmanuellipereze@gao.gov. 

Contact points for our work at individual agencies are shown appendixes I 

through IV of this report. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report.

Sincerely yours,

Michelle Sager

Director, Strategic Issues

Edda Emmanuelli Perez

Managing Associate General Counsel
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 17 GAO-14-452 2013 Sequestration

Figure 1: U.S. Customs and Border Protection Mission and Fiscal Year 2013 Sequestered Funding

CBP, a component of DHS, is the largest uniformed law enforcement 

agency in the United States, with approximately 21,400 Border Patrol 

agents patrolling between the nation’s ports of entry and more than 

21,000 CBP officers stationed at airports, seaports, and ports of entry on 

land nationwide.1

 1

Ports of entry are locations at which individuals and merchandise may seek legal entry 

into the United States.

We focused our analysis on two CBP offices—the U.S.

Border Patrol (USBP) and the Office of Field Operations (OFO)–and one 

fee account within CBP’s budget, the COBRA fee account, which among 

other things, the government levies for air and commercial vessel 

Appendix I: Fiscal Year 2013 Sequestration 

at U.S. Customs and Border Protection

Mission and Budget 

Overview
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 18 GAO-14-452 2013 Sequestration

passenger customs inspections.

2 We selected these two offices and the 

COBRA fee account based on the magnitude of their respective budgets 

and sequestration’s effects, as well as the degree to which their activities 

provide a service to the public, among other things. Within USBP, we 

interviewed officials from 4 of the office’s 20 sectors—Blaine sector, 

Washington; Rio Grande Valley sector, Texas; Yuma sector, Arizona; and 

San Diego sector, California—which were selected based on factors such 

as location, size, and workload.3 Within OFO, we interviewed officials 

from 6 of the office’s 20 field offices—Los Angeles, California; Chicago, 

Illinois; Houston, Texas; Detroit, Michigan; New York, New York; and San 

Diego, California—which were selected based on factors such as 

location, size, number and type of ports of entry, and volume of cargo and 

passengers processed.4

 2

The COBRA fee account is named for its authorizing legislation, the Consolidated 

Omnibus Budget Reconciliation Act of 1985. Pub. L. No. 99-272, 100 Stat. 82 (1986). The 

law provides that the fees are to reimburse CBP accounts for a specific set of 

reimbursable expenses. 19 U.S.C. § 58c(f)(3). 

While information we obtained from these 

locations cannot be generalized to all sectors and field offices, the visits 

provided us with insights into the planning, implementation, and effects of 

sequestration. In addition, we interviewed officials from the Airports 

Council International-North America, Airlines for America, the American 

Association of State Highway and Transportation Officials, and the 

American Trucking Associations to gain various industry perspectives on 

sequestration’s effects on industry in fiscal year 2013, as well as 

perspectives on CBP’s planning for and implementation of sequestration. 

We assessed the reliability of data related to CBP’s budget, transfer and 

reprogramming actions, enforcement actions, miles driven by USBP 

personnel, air passenger wait times, allocation of overtime, and sector 

budgetary reductions. Specifically, we questioned knowledgeable agency 

officials, reviewed documentation, and examined the data for obvious 

errors or inconsistencies. We determined that the data collected from 

3

USBP has divided geographic responsibility among 20 sectors. Each sector has a 

varying number of stations, with Border Patrol agents responsible for patrolling within 

defined geographic areas. 

4

There are 20 field operations offices in the United States that provide centralized 

management oversight and operational assistance to 329 U.S. ports of entry, among other 

things. At ports of entry, CBP enforces the federal import and export laws and regulations 

and carries out immigration policy and programs, as set forth in federal statutes and 

regulations. CBP Agricultural Specialists perform agriculture inspections aimed at 

protecting the United States from potential carriers of animal and plant pests or diseases 

that could cause serious damage to America’s crops, livestock, pets, and the environment.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 19 GAO-14-452 2013 Sequestration

CBP for this review were sufficiently reliable for the purposes used in this 

report.

CBP’s priority mission is to prevent terrorists and terrorist weapons from 

entering the United States and to ensure the security of U.S. borders and 

ports of entry while also facilitating legitimate travel and trade. Figure 2 

illustrates CBP’s organization and funding levels during fiscal year 2013 

for USBP, OFO, and the COBRA fee account (see also Appendix VII).
Page 20 GAO-14-452 2013 Sequestration

Source: GAO.

Commissioner

Deputy

Commissioner

Assistant 

Commissioner

Office of 

Field Operations

Assistant 

Commissioner

Office of

Internal Affairs

Assistant 

Commissioner

Office of

Public Affairs

Assistant 

Commissioner

Office of

Training and 

Development

Assistant 

Commissioner

Office of 

Technology Innovation

and Acquisition

Assistant 

Commissioner

Office of 

Information and

Technology

Assistant 

Commissioner

Office of

Human Resources

Management

Assistant 

Commissioner

Office of

Administration

Assistant 

Commissioner

Office of

Congrssional Affairs

Assistant 

Commissioner

Office of

International Trade

Assistant 

Commissioner

Office of

International Affairs

Assistant 

Commissioner

Office of Intelligence

and Investigative

Liaison

Assistant 

Commissioner

Office of

Air and Marine

Chief

Office of

Border Patrol

a

 Explanatory Statement, Consolidated and Further Continuing Appropriations Act, 2013, 159 Cong. 

Rec. S1287, S1549 (daily ed. Mar. 11, 2013).

b According to CBP’s budget office, the $3.2 billion represents funding for CBP’s Border Security 

Inspections and Trade Facilitation Programs, Projects, and Activities (PPA). Funding for OFO 

comprises the majority of this PPA. 

c

 This amount represents the fiscal year 2013 budget authority as stated in the explanatory statement 

accompanying the Consolidated and Further Continuing Appropriations Act, 2013. The OMB 

baseline established in its March 1 report for this account was $529.4 million.

d

 Pub. L. No. 113-6, 127 Stat. 198, 345 (2013).

e

 According to CBP’s budget office, the $3.7 billion represents funding for CBP’s Border Security and 

Control between Ports of Entry PPA. Funding for USBP comprises the majority of this PPA. 

Appendix I: Fiscal Year 2013 Sequestration at

U.S. Customs and Border Protection

Interactive graphic Figure 2: U.S. Customs and Border Protection Organization Chart and Fiscal Year 2013 

Funding Levels 

Move mouse over blue highlighted organizations for more information. See appendix VII for noninteractive version.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 21 GAO-14-452 2013 Sequestration

CBP headquarters, Border Patrol sector, and OFO field office officials 

cited effects resulting from sequestration in three areas: (1) services to 

the public, (2) operations, and, (3) CBP’s workforce.5

Services to the public: OFO officials from the Houston, Los Angeles, and 

New York field offices cited effects on cargo operations resulting from 

sequestration. Specifically, to ensure that international air passenger wait 

times were kept to a minimum in fiscal year 2013, these three field offices 

chose to shift officers who typically inspected cargo to the air passenger 

environment.6

Further, from fiscal year 2012 to fiscal year 2013, some domestic airports 

experienced an increase in international passenger wait times. For 

example, OFO reported that at Logan International Airport in Boston, 

Massachusetts, the average wait time increased from 19.7 minutes in 

fiscal year 2012 to 22.8 minutes in fiscal year 2013. During the same time 

frame, at Dallas Fort Worth International Airport, the average wait time 

increased from 20.9 minutes to 26.8 minutes, as reported by OFO. 

According to OFO headquarters officials, staff typically work overtime to 

meet the need imposed by an increase in travelers during daily peak 

arrival times, as well as outside of normal business hours. OFO uses two 

types of overtime to compensate its employees for additional hours 

worked. The first type, COPRA overtime, instituted by the Customs 

Officer Pay Reform Act, is available for CBP officers and agricultural 

specialists and provides an hourly rate of pay that is equal to two times 

the hourly rate of the basic pay of the officer.

According to officials from the Los Angeles field office, this 

shift in resources, compounded by reductions in overtime, led to some 

delays in air cargo inspections. Officials from this field office stated that in 

some instances, officers could not inspect all cargo in the queue during 

their normal shift. As a result, some cargo was not inspected until the next 

shift began, delaying the release of cargo for shipment.

7

 5

The Office of Administration reported that CBP met most of its established fiscal year 

2013 Government Performance and Results Act performance measures. According to 

written responses from this office, the performance measures that were not met by CBP in 

fiscal year 2013 were not attributed to sequestration.

The second type, known as 

6

CBP generally calculates air passenger wait times as the time interval between the 

arrival of the aircraft and the processing of the passenger by a CBP officer at the primary 

booth, less the passenger’s walk time.

7

See 19 U.S.C. § 267; 19 C.F.R. § 24.16.

Sequestration Cuts 

Had Short-Term and 

May Have Long-Term 

Effects on CBP’s 

Services to the 

Public, Operations, 

and Workforce
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 22 GAO-14-452 2013 Sequestration

FEPA because it was instituted by the Federal Employees Pay Act, 

applies to all other positions in OFO (about 20 percent of the workforce, 

according to OFO).8

Operations: According to USBP officials, sequestration affected agents’

ability to patrol remote borders because it resulted in reduced funding for 

overtime, among other things. USBP officials stated that Border Patrol 

agents typically need to work beyond their 8-hour shifts and claim 

overtime for the additional hours they spend on duty.

According to officials from the Airports Council 

International-North America, wait times had been a persistent issue over 

the last several years. OFO headquarters officials explained that 

sequestration reduced funding available to pay overtime necessary to 

fully staff inspection booths, which resulted in these increased wait times.

9

Border Patrol agents often earn administratively uncontrollable overtime 

(AUO) for these additional work hours, according to USBP officials. USBP 

reported that at the end of fiscal year 2013, AUO expenditures within 

USBP were about $5 million lower than the amount included in CBP’s 

original financial plan for fiscal year 2013.10

 8

See 5 U.S.C. §§ 5542-5550b.

According to CBP budget 

officials, this expenditure reduction was in addition to other planned 

reductions to AUO and other overtime expenditures over the last few 

fiscal years. According to officials from 2 of the 4 Border Patrol sectors we 

interviewed, the reductions to AUO affected their ability to perform certain 

mission-critical activities, such as apprehending individuals attempting to 

enter the United States illegally. Specifically, according to sector officials, 

as a result of the reduction in AUO agents were unable to routinely patrol 

outlying border areas because of the length of time it takes to reach these 

areas. For example, officials from the Yuma sector in Arizona stated that 

it is about a 45 minute drive from Yuma to its San Luis station. Yuma 

officials stated that when an agent arrives at this station, the agent that he 

or she is relieving may already be 1 hour into AUO. Other stations within 

9

According to CBP budget officials, agents may claim other types of overtime pay, other 

than AUO, for hours worked beyond their 8-hour shifts depending on the type of duties 

performed during this time and whether the work was scheduled in advance. However, 

AUO is the primary overtime for Border Patrol agents.

10In January 2014, for reasons unrelated to sequestration, DHS suspended AUO for 

certain positions, including those for full-time instructors and employees working in 

component headquarters offices, pending further review of AUO policies and practices. 
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 23 GAO-14-452 2013 Sequestration

the Yuma sector are more than 3 hours away from Yuma sector 

headquarters, requiring significant use of AUO, according to sector 

officials.11

Likewise, USBP reported that a reduction to its vehicle maintenance, 

repair, and fuel funding resulted in agents traveling less frequently to 

remote sector locations, which led to reported effects on CBP’s 

operations.12

Effective March 1, 2013, USBP also suspended home-to-work vehicle 

authorizations for all employees with the exception of canine units and 

resident agents. This action had the effect of requiring some agents to 

travel from their homes to their assigned duty stations before traveling out 

to the field.

In fiscal year 2013, 14 of CBP’s 20 sectors reported a 

decrease in miles driven compared with miles driven in fiscal year 2012. 

For example, the Yuma sector reported about 13.27 million miles driven 

in fiscal year 2013 compared with about 19.80 million miles driven in 

fiscal year 2012; the Grand Forks sector in North Dakota reported about 

2.4 million miles driven in fiscal year 2013 compared with about 3 million 

miles in fiscal year 2012. Yuma officials we spoke with stated that they 

discontinued the use of vehicles in need of repairs to reduce fleet-related 

costs in fiscal year 2013. Yuma officials stated that, as a result, their 

sector went from 90 percent vehicle availability before sequestration to 70 

to 80 percent availability afterwards, thus limiting the number of miles 

patrolled. Officials from the Blaine sector stated that they placed two 

agents per vehicle to reduce fuel usage, which affected the miles of 

border patrolled in a given day. Blaine officials stated that they could not 

patrol one of their distant zones with optimal frequency as a result of the 

reductions to fuel.

13

 11For the purposes of this review, we did not assess whether this was an appropriate use 

of AUO. We have work underway reviewing DHS’s administration and use of AUO and 

expect to report on the results of our work later this year. 

According to Border Patrol sector officials we interviewed, 

12According to CBP’s Office of Administration, operational offices manage fuel and 

maintenance budgets for their vehicles. Accordingly, the Office of Administration was not 

able to provide definitive data to support reduced fuel and maintenance funding due to 

sequestration.

13A resident agent is assigned to a specific Border Patrol station, but lives and works at an 

assigned location away from the station. According to CBP, the number of home-to-work 

vehicle authorizations across all operational offices was reduced by about 1,295 as of 

March 2013.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 24 GAO-14-452 2013 Sequestration

this also had an effect on staffing and operations because home-to-work 

authorizations allow personnel to use a government vehicle for official 

purposes, which may include travel between the individual’s residence 

and various locations required for the performance of field work.14

Documentation provided by OFO indicated that, in fiscal year 2013, OFO 

experienced a reduction in some enforcement actions at ports of entry, 

such as those related to the inspection of cargo and, seizures of inbound 

ammunition and drugs.

Between March and June 2013, 9 sectors reported to Border Patrol 

headquarters that these reductions had led to delays in agents’ response 

times. For example, the Big Bend sector reported that an agent was 

delayed in arriving at a scene and subsequently county officials were 

required to release 10 subjects believed to be illegally in the United 

States.

15 For example, between April and July 2013, OFO 

reported that inspections of regulated cargo declined by about 21 percent, 

inbound ammunition seized decreased by about 79 percent, fraudulent 

documents intercepted at ports of entry decreased by about 15 percent, 

and heroin confiscations decreased by about 21 percent.16

 14See 31 U.S.C. § 1344. 

For example, 

Chicago field office officials stated that to prioritize the processing of 

people and goods and keep air passenger wait times down, as directed 

by OFO headquarters, the office limited its enforcement efforts in fiscal 

year 2013. Chicago officials expressed concern regarding potential longterm effects of declining enforcement efforts; their field office conducted 

fewer contraband exams per month, as well as passenger interviews, and 

outbound currency seizures during fiscal year 2013. According to Chicago 

field office officials, Chicago O’Hare International Airport experienced a 6 

percent increase in arriving passenger volume in fiscal year 2013, so they 

would have expected these enforcement numbers to increase, not 

decrease.

15According to documentation provided by OFO, some enforcement actions, such as 

those related to the inspections of ferries, small vessels, and train passengers, increased 

in fiscal year 2013. 

16We did not analyze the effects on fiscal year 2013 enforcement actions to determine 

whether sequestration was the sole or primary cause of these reductions.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 25 GAO-14-452 2013 Sequestration

CBP workforce: As of April 1, 2013, CBP suspended all nonmandatory 

training as a result of sequestration.17

Border Patrol and OFO officials—those in headquarters and in the field—

also expressed concern regarding the effect of sequestration on 

employee morale. As a result of CBP hiring restrictions for positions other 

than agents and officers, officials from the Rio Grande Valley and San 

Diego sectors stated that agents were asked to perform administrative 

tasks, outside of their scope of responsibility.

Between March and June 2013, 6 

Border Patrol sectors reported the cancellation of training classes ranging 

in topics from hazardous materials operations to employee supervision. 

Border Patrol and OFO officials we spoke with expressed concern 

regarding the effects of this canceled training on employees’ skill sets. 

Officials from the Blaine sector stated that nonmandatory training is 

essential to their workforce. For instance, Blaine sector officials stated 

that nonmandatory training classes that were canceled in fiscal year 2013 

provided valuable skills, such as training in high-speed pursuit, 

leadership, weapons of mass effect, and incident command system. 

Officials from the Rio Grande Valley sector stated that some specialty 

training, such as canine training, was also canceled in fiscal year 2013 as 

a result of limited travel funding for their agents.

18 Officials from the Chicago, 

Los Angeles, and New York field offices stated that employee morale was 

affected as a result of asking officers and support staff to do more with 

fewer resources, including performing duties typically completed by 

mission support staff.19

 17According to a March 5, 2013 e-mail to CBP executives from CBP’s Office of Training & 

Development, the office planned to resume classes in a prioritized manner when funding 

became available. 

18CBP was required to maintain an active duty presence of not less than 21,370 full-time 

equivalent Border Patrol agents in the Consolidated and Further Continuing 

Appropriations Act, 2013, and directed to maintain no less than 21,775 CBP officers in the 

explanatory statement accompanying the fiscal year 2013 appropriations act. Pub. L. No. 

113-6, 127 Stat. 198, 345; Explanatory Statement, Consolidated and Further Continuing 

Appropriations Act, 2013, 159 Cong. Rec. S1287, S1549 (daily ed. Mar. 11, 2013).

19During fiscal year 2013, CBP suspended the hiring of operational and mission support 

staff from outside of CBP. According to officials from the Chicago field office, officers and 

specialists either volunteered to fill these support roles or these roles were assigned as 

collateral duties.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 26 GAO-14-452 2013 Sequestration

According to CBP budget officials, CBP was better positioned to plan for 

and address further budget reductions in fiscal year 2013 because prior to 

sequestration it had taken efforts aimed at reducing costs and 

streamlining operations. As it became more certain sequestration would 

occur, CBP’s headquarters initiated planning as the reductions necessary 

to comply with sequestration evolved. After the sequestration order, CBP 

headquarters generally managed budgetary reductions and delegated 

implementation decisions affecting operations to program offices. 

According to CBP headquarters officials, it would be challenging for CBP 

to replicate some of these actions in future years depending on the levels 

of and conditions on any future funding.

According to CBP officials, cost savings measures implemented prior to 

sequestration helped the component address reductions resulting from 

sequestration. For example, prior to sequestration, CBP implemented or 

expanded initiatives, such as Automated Passport Control and trusted 

traveler programs, to expedite screening procedures at ports of entry.20

 20Automated Passport Control is an expedited CBP entry process that allows arriving 

eligible international passengers to clear customs more efficiently by allowing entry of 

passport information at a self-service kiosk. CBP’s trusted traveler programs provide 

expedited travel for pre-approved, low risk travelers through dedicated lanes and kiosks. 

We have ongoing work reviewing several of CBP’s trusted travel programs and plan to 

report on the results of our work later this year. 

OFO and air travel association officials stated that the implementation of 

Automated Passport Control had an effect on efficiently processing 

international air passengers at airports and managing wait times. In 

addition, CBP took steps prior to sequestration to reduce spending, such 

as limiting hiring and reducing operating expenses. Specifically, beginning 

in July 2012, CBP restricted non-agent/officer hiring and filled open 

positions only from within CBP. In addition, individual sectors and field 

offices took steps to operate more efficiently in fiscal year 2013 and 

beyond. For example, in August 2011 the Rio Grande Valley sector 

partnered with CBP’s Office of Air and Marine to institute a bulk fuel 

program that, according to this sector, saved CBP an average of 

CBP Headquarters 

Centrally Managed 

Planning for 

Sequestration and 

Delegated Many 

Implementation 

Decisions Affecting 

Operations to 

Program Offices

Cost Efficiency Efforts 

Implemented Prior to 

Sequestration Helped 

Absorb Some Budget 

Reductions
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 27 GAO-14-452 2013 Sequestration

approximately $1,200 per month through reduced fuel costs.21 In addition, 

officials at OFO’s Chicago field office stated that they chose to reduce 

overtime usage by about one-third from February through May 2013, prior 

to the sequestration order, to ensure that the Chicago field office would 

have enough funding to cover overtime costs in the peak summer travel 

period.

According to CBP budget officials, CBP headquarters began to plan for 

sequestration in November 2012 and led planning efforts across CBP’s 

program offices by providing the offices with estimated funding reductions 

that they could use to prepare for sequestration. CBP adapted its 

sequestration plan as its anticipated reductions changed prior to and after 

the March 1, 2013, sequestration order. Table 2 provides a timeline of the 

anticipated sequestration reductions prior to and during fiscal year 2013.

Table 2: U.S. Customs and Border Protection’s Anticipated Funding Reductions in 

Fiscal Year 2013

Date Anticipated funding reduction (millions)

September 14, 2012 $955 

February 19, 2013 $754 

March 1, 2013 $595 

March 27, 2013 $601 

April 29, 2013 $576 

Source: GAO analysis of CBP budget data.

According to officials from CBP’s Offices of Administration and Program 

Development, in November, 2012, they developed a planned budget 

using CBP’s enacted fiscal year 2012 budget with a reduction of 8.2 

percent from each discretionary program, project, and activity (PPA), and 

7.6 percent for each direct spending PPA.22

 21CBP’s Office of Air and Marine deploys the largest law enforcement air force in the 

world. In support of homeland security missions, the Office of Air and Marine provides 

aircraft, vessels, and crew at the request of its customers, primarily USBP, and tracks its 

ability to meet requests.

CBP budget officials stated 

22The Office of Management and Budget (OMB) produced these preliminary estimates as 

directed by the Sequestration Transparency Act of 2012. See Pub. L. No. 112-155, § 2, 

126 Stat. 1210 (2012). Because a fiscal year 2013 appropriation had not been enacted, 

OMB based the estimates on the fiscal year 2012 appropriation level, as required.

CBP’s Headquarters 

Initiated Planning as the 

Reductions Necessary to 

Comply with Sequestration 

Evolved
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 28 GAO-14-452 2013 Sequestration

that in late November 2012 they provided this tentative budget to the 

program offices and asked them to provide actions to meet these 

reductions, assuming funds could not be transferred or reprogrammed.23

Program offices provided CBP headquarters with their proposed cuts by 

December 5, 2012, according to CBP headquarters officials. Some offices 

identified specific cuts to non-personnel areas, while others considered 

reductions to overtime or proposed furlough days. According to CBP 

budget officials, they worked with program offices that anticipated heavy 

employee furloughs to identify other options for achieving reductions. 

Although CBP ultimately mitigated the need to furlough employees in 

fiscal year 2013, CBP budget officials stated that furloughs were difficult 

to avoid given the initial estimates for the sequestered funding and 

projected full year budget authority. A major factor is that payroll-related 

costs consume a large percentage of CBP’s available funding; for 

example, OFO’s payroll expenses comprise more than 90 percent of its 

funds. According to DHS’s and CBP’s early sequestration and budget 

authority assumptions, OFO anticipated the equivalent of nearly 50 

furlough days.

According to officials from CBP’s Office of Program Development, they 

instructed program offices to look for cuts to less critical areas first and 

focus on preserving personnel by implementing furloughs only if 

necessary.

The sequestration amount changed in January 2013 when the anticipated 

percentage reductions were revised to 5 percent. At this point, CBP’s 

internal preparations for potential reductions revealed that significant 

changes were likely to occur. See table 3 for CBP’s considered 

reductions to meet sequestration, as of January 2013.

 23Reprogramming is the shifting of funds within an appropriation account for purposes 

other than those contemplated at the time of appropriation. A transfer is the shifting of 

funds between appropriation accounts.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 29 GAO-14-452 2013 Sequestration

Table 3: Reductions Considered, as of January 2013, by U.S. Customs and Border 

Protection to Meet Sequestration Requirements

Area Amount of considered reduction (millions) 

Overtime and premium pay $288 

Contract support and services $85 

Training $25 

Relocation compensation and travel $23 

Home-to-work and fuel, maintenance, 

and repair for regular vehicle operations

$21 

Facilities-related contracts or services $21 

Initiatives $13 

Equipment and supplies $9 

Furlough days 18 daysa

Source: GAO analysis of CBP data.

Notes: These considered reductions do not reflect any subsequent transfer or reprogramming actions 

that CBP took later in the fiscal year.

a

CBP mitigated the need to furlough any of its employees in fiscal year 2013.

In January 2013, the Office of Management and Budget (OMB) issued a 

memorandum directing agencies to intensify efforts to prepare for 

sequestration; however, sequestration reductions were not finalized and it 

remained unclear whether certain accounts would be exempt, according 

to CBP budget officials.24 On February 21, 2013, the CBP Deputy 

Commissioner provided guidance on planning, with guiding principles of 

protecting critical missions, mitigating the disruption to employees, and 

maintaining operations and programs. This guidance specified that 

sequestration cuts, through furloughs and reductions to overtime, could 

decrease the number of equivalent work hours by more than 5,000 

Border Patrol agents and 2,750 CBP officers.25

 24According to OMB officials, budget uncertainty at this point in the fiscal year was not 

specific to CBP; rather, OMB officials stated that most federal agencies sought additional 

clarification on the application of sequestration to their enacted 2013 appropriations. 

After receiving this 

25Such a decrease in equivalent work hours would not reduce the number of on-board 

Border Patrol agents and CBP officers by 5,000 and 2,750, respectively, and thereby 

result in levels below the numbers set in the appropriations act and the accompanying 

explanatory statement, according CBP budget officials. However, in its planning for 

sequestration CBP expressed concerns about hiring new agents to sustain its agent and 

officer levels while having to furlough experienced agents and officers to meet 

sequestration reductions.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 30 GAO-14-452 2013 Sequestration

guidance, Border Patrol and OFO headquarters provided planning 

priorities for sequestration to sectors and field offices. According to 

Border Patrol headquarters officials, sectors communicated their 

sequestration implementation plans with Border Patrol headquarters and 

worked with them to find appropriate reductions. Some sectors identified 

sector-specific areas that were most mission-critical to maintain during 

sequestration, including health and safety for agents and detainees, as 

well as maintaining control of the border between ports of entry.

OFO field offices had discretion to determine specific reductions within 

the field office budgets and to prioritize their own actions, in consultation 

with OFO headquarters. According to OFO headquarters officials, they 

asked the field offices to outline port contingency plans in the event of 

severe reductions and to identify possible results and effects, including 

those related to public services. Field offices provided this information to 

OFO headquarters, which consolidated them into a formal memorandum 

that was distributed back to the field offices on February 26, 2013. The 

memorandum instructed field offices to focus on preserving essential 

services—such as the clearing of goods and persons—and to consider 

reductions to lower priority spending and operational activities—such as 

secondary training and enforcement activities, respectively.

The effect of sequestration on specific fee accounts remained uncertain 

as of January 2013, according to CBP budget officials. Budget officials 

stated that fee accounts, such as the COBRA fee account, play an 

integral role in CBP’s planning and budget process because they 

reimburse CBP’s Salaries and Expenses account for certain expenses, 

such as overtime pay for CBP officers, that comprises about 30 percent of 

that account. According to CBP budget officials, they had a better 

understanding of their plans for sequestration with respect to fee 

accounts by late February 2013, but officials still needed additional 

clarification on how the cuts would be applied. Although OMB issued 

official guidance based upon input received from agencies in the summer 

of 2012, CBP remained uncertain about how this guidance would be 

applied to each of the unique fee accounts that it relied upon to fund its 

operations until August 2013. Ultimately, OMB determined that 

sequestration would be applied to the amount of fees collected and that, 

for COBRA fees, the funds would be available in future years.
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 31 GAO-14-452 2013 Sequestration

CBP headquarters coordinated the components’ reductions in funding 

and implemented some component-wide actions to meet sequestration; 

CBP’s program offices had the flexibility to determine many 

implementation decisions. USBP’s implementation of sequestration 

reductions varied among its sectors based on mission needs. Similarly, 

OFO’s reductions varied across its field offices. Because of the 

complexity of CBP’s fee accounts, reductions to the COBRA fee account 

remained unclear until late in fiscal year 2013.

Although the final sequestration reduction of 5 percent was lower than the 

initial 8.2 percent reduction estimated by OMB, CBP budget officials 

reported that it was challenging to absorb this reduction in the last half of 

the fiscal year. Budget officials specifically mentioned that implementing 

sequestration was difficult because of the large percentage of CBP’s 

available funding dedicated to payroll—about 70 percent, or $8 billion. On 

the basis of its anticipated funding and sequestration reductions, CBP 

began to issue notices to all employees beginning on March 7, 2013, that 

they may be furloughed.26 Though sequestration went into effect on 

March 1, the amount of CBP’s anticipated reductions and resulting 

actions evolved over the course of the fiscal year. For example, although 

CBP issued furlough notices in early March 2013, the component 

subsequently mitigated the need for furlough days as a result of 

reprogramming, transfers, and increased funding available to CBP 

through the enactment of the Consolidated and Further Continuing 

Appropriations Act, 2013.27

 26As of March 4, 2013, CBP estimated that it would need to implement a component-wide 

furlough of up to 14 nonconsecutive work days for each employee.

Transfers included $36 million from other CBP 

accounts and $24 million from other DHS components to CBP’s Salaries 

and Expenses account. At the recommendation of the House Committee 

on Appropriations, CBP transferred an additional $7 million in unobligated 

balances from its 2011 and 2012 Border Security Fencing Infrastructure 

and Technology accounts to its Salaries and Expenses account. These 

unobligated balances had been set aside for emerging requirements and 

pilot programs, but were used instead, along with a transfer from the DHS 

Office of Intelligence and Operations account, to maintain minimum 

numbers of Border Patrol agents and CBP officers.

27The Consolidated and Further Continuing Appropriations Act, 2013, enacted on March 

26, 2013, increased funding by over $253 million above the level that had been assumed 

as CBP’s baseline. See Pub. L. No. 113-6, 127 Stat. 198.

CBP Headquarters 

Generally Managed 

Reductions and Delegated 

Implementation Decisions 

Affecting Operations to 

Program Offices

CBP Headquarters 

Coordinated Funding 

Reductions and Implemented 

Some CBP-Wide Actions
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 32 GAO-14-452 2013 Sequestration

To meet the remaining reductions required by sequestration, CBP 

reported that it implemented the following actions:

• suspended the hiring of operational and mission support staff from 

outside of CBP

• minimized travel to only that which was mission critical;

• reduced temporary duty station assignments;

• reduced retention, recruitment, and relocation expenditures;

• canceled the remaining nonmandatory training classes scheduled in 

fiscal year 2013;

• delayed or reduced the scope of certain contracts; and

• deferred the replacement of over 800 motor vehicles, increasing these 

affected vehicles’ lifecycle by a minimum of 1 year.

USBP reported that reductions varied across its sectors relative to 

mission needs in an effort to implement sequestration with limited effects

on personnel. For example, as of May 2013 CBP’s budget office 

estimated that the post-sequestration non-payroll reduction to the Yuma 

sector was 23 percent, whereas the estimated nonpayroll reduction to the 

Spokane sector was about 9 percent.28

USBP initially anticipated discontinuing its agents’ use of AUO; however, 

USBP ultimately chose to reduce non-pay expenditures and maintain 

existing overtime and premium pay reductions, resulting in a cost 

avoidance of about $5 million to AUO in fiscal year 2013.

To provide additional funds to 

sectors with increased mission requirements, USBP redirected funds 

away from one or two sectors that were able to operate on less than they 

had originally received, according to USBP officials. According to USBP 

officials, some sectors made significant cuts in the first and second 

quarters of fiscal year 2013 in anticipation of a possible sequestration. 

The funding for these sectors was redirected to other sectors later in the 

fiscal year. According to USBP officials, it was challenging to implement 

sequestration without affecting employees because salary and benefits 

for USBP represent 93 percent of total budget authority.

29

 28These reductions do not reflect final end of fiscal year 2013 expenditures. 

According to 

29On March 4, 2013, CBP’s Director of Labor Management Relations notified the National 

Border Patrol Council of CBP’s intent to decertify AUO beginning April 7, 2013. On March 

7, 2013, the CBP Acting Chief Operating Officer issued a memorandum indicating that 

CBP was taking the initiative to de-authorize AUO payments to employees assigned to 

positions that were authorized to earn AUO, effective April 7, 2013, on an emergency 

basis due to sequestration. However, CBP did not take action pursuant to the March 4, 

2013 notice or the March 7, 2013 memorandum.

USBP Implemented Cuts to 

Sectors Relative to Mission 

Needs
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 33 GAO-14-452 2013 Sequestration

USBP, it closely managed, monitored, and updated overtime projections 

each pay period so the reduction efforts were successful and in July 

2013, USBP determined it would continue its agents’ use of AUO.30

Similar to USBP’s implementation of sequestration, reductions within 

OFO varied across its field offices. OFO determined specific reductions to 

each field office based on factors such as travel and trade facilitation, 

seasonality, and wait time data. Overall, according to OFO headquarters 

officials, field offices made reductions to the following: overtime for 

administrative personnel, CBP officers, and agriculture specialists; travel; 

and training, among other areas. In some field offices, management 

shifted uniformed officers from cargo processing to passenger processing 

and vice versa to minimize wait times because of limited overtime 

funding. As OFO approached the end of the fiscal year, it determined that 

additional overtime hours—for both FEPA and COPRA overtime—would 

be required to fulfill operational needs such as processing people and 

goods at ports of entry. In August 2013, OFO reprogrammed $623,019 

that was available as a result of CBP’s hiring pause in fiscal year 2013 to 

fund additional FEPA overtime.

Border Patrol headquarters and sector officials stated that the reductions 

to AUO were challenging to implement because of the unpredictability of 

patrolling the border and the need for agents to frequently work beyond 

their 8-hour shifts to complete their duties. In addition to overtime 

reductions, USBP made reductions in nonpayroll expenditures, such as 

vehicle fleet fuel, maintenance, and acquisition. USBP also reduced a 

large detainee transportation contract, as well as specialized and 

supplemental training. Officials from the Blaine sector explained that to 

reduce costs in fiscal year 2013, they delayed necessary repairs on some 

vehicles, and used other modes of transportation such as snow mobiles, 

bicycles, and motorcycles to the extent possible. These officials stated, 

however, that eventually their sector will need to repair its aging vehicles 

and purchase new ones to maintain operations.

31

 30In January 2014, for reasons unrelated to sequestration, DHS suspended AUO for 

certain positions, including those for full-time instructors and employees working in 

component headquarters offices, pending further review of AUO policies and practices. 

In addition, OFO was able to make 

additional COPRA overtime funds available to each field office during the 

peak summer travel season, which resulted in additional hours officers 

31This funding was intended for other than full-time hiring, but CBP could not bring 

students or temporary/seasonal workers on board during the hiring pause. 

OFO Reductions Varied 

Across Its Field Offices
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 34 GAO-14-452 2013 Sequestration

could inspect passengers and cargo. OFO’s actual expenditures on 

overtime for its officers and agriculture specialists at the end of fiscal year 

2013 exceeded its initial planned overtime budget. Figure 3 illustrates the 

fluctuations in COPRA overtime expenditures for OFO in fiscal year 2013.

Figure 3: Office of Field Operations COPRA Overtime Expenditures during Fiscal 

Year 2013

Note: This figure reflects reductions in COPRA overtime, instituted by the Customs Officer Pay 

Reform Act, which is available to CBP officers and agricultural specialists. FEPA overtime is not 

included in this figure.

According to CBP budget officials, it was complicated to apply 

sequestration to fee accounts, including the COBRA fee account. Though 

OMB issued guidance in the summer of 2012, CBP budget officials stated 

that CBP remained uncertain about how this guidance would be applied 

to its fee accounts, including the COBRA fee account, until August 2013. 

For instance, CBP budget officials stated there was uncertainty about 

which fees were exempt from sequestration. According to CBP budget 

officials, OMB determined that the sequestration percentage reduction 

would be applied to fiscal year 2013 collected fees, and for the COBRA 

account, OMB determined that the sequestered funds would be available 

in fiscal year 2014. In fiscal year 2013, CBP collected about $647 million 

for the COBRA fee account.32

 32Fiscal year 2013 collections included $198 million that CBP collected pursuant to the 

Colombia Free Trade Agreement, which was not available to CBP. See Pub. L. No. 112-

42, § 601, 125 Stat. 462, 495 (2011).

COBRA Fee Account 

Reductions Remained Unclear 

Until Late in Fiscal Year 2013
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 35 GAO-14-452 2013 Sequestration

In September 2013, CBP budget officials stated that for fee accounts 

where the sequestered funds would be made available in the following 

fiscal year and not permanently reduced, the sequestered balances would 

be apportioned to CBP for use, that is, reimbursement of the Salaries and 

Expenses account, in the first quarter of fiscal year 2014. However, CBP 

was not apportioned the sequestered COBRA fee balances until 

December 2013. CBP’s budget office reported that the delayed 

availability of the sequestered COBRA fees created financial challenges 

for CBP during the first 2 months of fiscal year 2014. As a result of the 

delay, CBP was unable to reimburse certain costs in the Salaries and 

Expenses account, which delayed some procurement actions until the 

COBRA fee balances were apportioned.

According to CBP officials, some of the actions taken in fiscal year 2013 

to address sequestration would be difficult or impossible to replicate in 

future fiscal years to address additional budget cuts.33 For example, CBP 

Office of Administration and Office of Program Development officials 

expressed concern over USBP’s ability to sustain nonpay cuts taken in 

fiscal year 2013 such as those related to equipment and fuel. Further, 

CBP’s transfer and reprogramming actions were key to its ability to 

mitigate furloughs in fiscal year 2013; however, CBP budget officials 

stated that, depending on the levels of and conditions on any future 

funding, such actions may not be possible in future years to absorb 

additional reductions in funding.34

 33Actions CBP officials identified as difficult to replicate include delaying construction and 

acquisitions and implementing reductions in spending for equipment and fuel.

Nevertheless, according to CBP Office 

of Administration and Office of Program Development officials, CBP is in 

a better position to respond to possible future budget cuts as a result of 

its planning and implementation of the fiscal year 2013 sequestration. In 

addition, CBP officials noted some lessons learned from implementing 

sequestration in fiscal year 2013. For example, while planning and 

implementing sequestration, CBP maintained open communication 

internally, which CBP officials credited as a factor to the success in 

planning for sequestration. Border Patrol sector and OFO field office 

officials highlighted the importance of communication in planning for the 

34In particular, in fiscal year 2013, DHS transferred $36 million from other CBP accounts 

and $24 million from other DHS agencies to CBP’s Salaries and Expenses account. DHS 

also transferred an additional $11 million into CBP’s Salaries and Expenses account to 

maintain 21,370 Border Patrol agents and 21,775 CBP officers. 

Actions Taken to 

Implement Sequestration 

in Fiscal Year 2013 Would 

Be Difficult to Replicate in 

Future Years
Appendix I: Fiscal Year 2013 Sequestration at 

U.S. Customs and Border Protection

Page 36 GAO-14-452 2013 Sequestration

fiscal year 2013 sequestration. Within OFO, field office officials said 

coordination internally and with stakeholders was an important aspect of 

their sequestration planning.35

For additional information, contact David C. Maurer at (202) 512-9627 or 

maurerd@gao.gov.

 35To facilitate communication between OFO headquarters and the field, OFO established 

a Communication Action Team to track and report specific operational impacts of 

sequestration, effective March 1, 2013. The Communication Action Team was to respond 

to inquiries from the field and disseminated policy guidance from OFO component offices, 

as needed.

GAO Contact
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 37 GAO-14-452 2013 Sequestration

Figure 4: Centers for Medicare & Medicaid Services Mission and Fiscal Year 2013 Sequestered Funding

a

Funding prior to sequestration as reported by CMS.

b

Estimated sequestered amount as of March 1, 2013. Actual amount sequestered will depend on 

Medicare claims submitted for the fiscal year 2013 Medicare sequestration period which ended March 

31, 2014.

Direct spending primarily for Medicare, Medicaid, and CHIP entitlement 

benefits accounted for most of CMS’s funding in fiscal year 2013 and 

Medicare benefits were the largest of those costs. Medicare is expected 

to provide health insurance coverage to more than 50 million individuals 

Appendix II: Fiscal Year 2013 Sequestration 

at the Centers for Medicare & Medicaid 

Services

Mission and Budget 

Overview
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 38 GAO-14-452 2013 Sequestration

in fiscal year 2014.1 Due to its size, complexity, and susceptibility to 

mismanagement and improper payments, Medicare has been on our 

high-risk list since 1990.2 Medicare payments to providers and plans were 

sequestered under special rules at a rate of 2 percent.3 By law, the 

Medicaid and CHIP programs were exempt from sequestration.4

Sequestration also reduced direct spending for grants to states to 

establish affordable insurance exchanges, certain Medicare program 

integrity activities, certain other initiatives, and some administrative 

activities, though these amounts were small compared to benefit 

payments. The majority of CMS’s funding for management and oversight 

of the three health insurance programs and other activities was subject to 

the discretionary nondefense sequestration percentage in fiscal year 

2013. CMS exercises most of its budgetary decision making through 

management of programs, projects, and activities (PPA) in the 

discretionary program management account.5

To examine how CMS prepared for and implemented sequestration and 

the effects of sequestration on CMS’s operations, performance, and 

services to the public, we collected information from CMS’s Office of 

Financial Management, which is responsible for developing the operating 

division’s budget and leading sequestration planning and implementation, 

as well as from program offices and centers that administer aspects of 

 1

Medicare consists of four parts. Parts A and B are known as Medicare fee-for-service 

and pay providers based on claims for services rendered. Part A covers hospital and other 

inpatient stays and Part B covers hospital outpatient, physician, and other services. Part 

C, also known as Medicare Advantage, is the private plan alternative to Medicare fee-forservice under which beneficiaries receive benefits through private health plans. Part D is 

the outpatient prescription drug benefit. Medicare pays Parts C and D plans a per enrollee 

amount. 

2

GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013).

3

We refer to payments made to providers and plans for the provision of Medicare benefits 

as “Medicare payments” for the purposes of this review. The law limited sequestration 

reductions of Medicare payments to 2 percent, unlike the percentage for other direct 

spending. Consistent with BBEDCA, the Office of Management and Budget (OMB) 

calculated percentage sequestration reductions of 5.1 percent for nondefense direct 

spending other than Medicare payments and of 5 percent for nondefense discretionary 

spending. Further, while agencies generally applied sequestration reductions to spending 

completed by the end of fiscal year 2013, reductions were applied to Medicare payments 

from April 1, 2013 through March 31, 2014. 

4

2 U.S.C. § 905(h).

5

The program management account also includes certain mandatory PPAs.
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 39 GAO-14-452 2013 Sequestration

seven case study activities we chose for examination—Medicare 

payments, state insurance exchange grants, Medicare Administrative 

Contractors (MAC), federal administration, Medicare provider survey and 

certification, clinical laboratory improvement amendments (CLIA) surveys, 

and CMS program integrity. To assess the reliability of data related to 

budget and program outcomes (provided by CMS) we reviewed 

information from knowledgeable officials and relevant documentation and 

compared budgetary information to published data, as appropriate. We 

determined that the data were sufficiently reliable for the purposes used 

in this report. We chose Medicare payments because they were 

sequestered at a special rate of 2 percent and accounted for 96 percent 

of CMS’s estimated sequestered funds. We chose the other activities 

because they represented the variety of CMS’s functions funded by 

discretionary and direct spending that were subject to sequestration. 

Specifically, we reviewed Medicare fee-for-service operations carried out 

by MACs because they administer Medicare payments and these 

contracts typically consume large portions of CMS’s discretionary funding. 

We chose federal administration because CMS funds the majority of its 

staff through this PPA and chose CMS program integrity because 

Medicare is on our high-risk list. Medicare provider survey and 

certification and CLIA surveys are relevant because of the influence of 

these surveys on patient safety. (See table 4 for more information on 

selected activities.) We interviewed officials from a purposeful sample of 

Medicare contractors—two MACs and a Zone Program Integrity 

Contractor (ZPIC)—and state survey agencies to obtain information on 

CMS’s planning and implementation of sequestration, as well as effects 

on the operating division’s fee-for-service operations, CMS program 

integrity activities, and state survey and certification oversight activities. 

We chose contractors responsible for large portions of Medicare business 

in geographically varied states identified as having a high potential for 

Medicare fraud. We chose 5 of the 52 state survey agencies for each 

state, the District of Columbia, and Puerto Rico based on variation in 

geographic location and population—Connecticut, Florida, Ohio, Utah, 

and West Virginia. In addition, to gain Medicare providers’ perspectives

regarding sequestration of Medicare payments, we interviewed two 

provider associations. Results from our interviews with CMS contractors, 

state survey agencies, and provider associations cannot be generalized 

to other CMS program partners.
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Table 4: Overview of Selected Centers for Medicare & Medicaid Services (CMS) Activities

Selected activities Overview Funding typea Fiscal year 2013 sequestration

Medicare payments Medicare is the federal program that helps pay for 

health care services for individuals age 65 years 

and older, certain individuals with disabilities, and 

those with end-stage renal disease.b

Direct spending Estimated funding prior to 

sequestration: $564.9 billionc

Estimated sequestered 

amount: $11.3 billion

State affordable insurance 

exchange grants 

The Patient Protection and Affordable Care Act 

(PPACA) required the federal government to assist 

states in preparing to set up health insurance 

exchanges. To do so, PPACA established 

affordable insurance exchange grants. The 

Department of Health and Human Services was 

authorized to award multiple grants to states from 

2010 through 2014.d

Direct spending Funding prior to 

sequestration: $628 millione

Sequestered amount: $44 

million

Medicare Administrative 

Contractors (MAC)

CMS uses MACs to process Medicare fee-forservice claims, enroll health care providers in the 

Medicare program, and conduct certain program 

integrity activities, among other functions. 

Discretionary Funding prior to 

sequestration: $873 millionf

Sequestered amount: $24 

million

Federal administration The majority of CMS’s expenses for staff and 

operating expenses for routine activities are funded 

through federal administration.g

Discretionary Funding prior to 

sequestration: $771 millionh

Sequestered amount: $39 

million

Survey and certification To ensure that health care facilities participating in 

Medicare and Medicaid—including nursing homes, 

hospitals, dialysis facilities, and home health 

agencies—provide quality care in a safe 

environment in accordance with federal standards, 

CMS contracts with state survey agencies to 

conduct periodic inspections, known as surveys, 

investigate complaints, and initiate enforcement 

actions against facilities that fail to comply with 

federal standards. CMS also contracts with national 

vendors to carry out certain specialized surveys and 

support activities.

Discretionary Funding prior to 

sequestration: $374 millioni

Sequestered amount: $19 

million

Clinical laboratory 

improvement amendments 

(CLIA)

The CMS office responsible for survey and 

certification activities also manages the CLIA 

program, which is funded entirely by user fees. 

Under CLIA, state survey agencies conduct 

inspections of clinical laboratories.

Discretionary Funding prior to 

sequestration: $43 million

Sequestered amount: $2 

million

CMS program integrity CMS uses a variety of contractors to perform 

program integrity activities, such as provider audits 

and prepayment and postpayment review of 

Medicare claims.j

Discretionary and 

direct spending

Funding prior to 

sequestration: $1.1 billionk

Sequestered amount: $25 

million

Source: GAO analysis of CMS information.

a

Discretionary appropriations are budgetary resources provided in appropriations acts. Direct 

spending, often referred to as mandatory spending, consists of budgetary resources provided by 

entitlement authority and laws other than appropriations acts.
Appendix II: Fiscal Year 2013 Sequestration at 

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b

Subject to special sequestration rules, Medicare payments were sequestered at 2 percent, including 

fee-for-service payments to providers (Parts A and B), as well as payments to Medicare Advantage 

and prescription drug plans (Parts C and D)—private plans that CMS contracts with to provide 

services to enrolled beneficiaries. Qualified individual premiums, Medicare Part D low income 

subsidies, and Part D catastrophic subsidies were exempt from sequestration.

c

Funding and sequestered amounts reflect estimates from the Office of Management and Budget 

(OMB) baseline as reported in its March 1, 2013 report. CMS will not know its final sequestered 

amount until the fiscal year 2013 reduction of Medicare payments ends on March 31, 2014, and CMS 

has reconciled final Medicare payments from April 2013 through March 2014. Funding for Medicare 

payments is provided through trust fund accounts through three CMS programs, projects, and 

activities (PPA)—Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance 

(SMI) Trust Fund, and the Medicare Prescription Drug Account of the SMI Trust Fund, according to 

CMS.

d

Pub. L. No. 111-148, § 1311(a), 124 Stat. 119, 173 (2010) (codified at 42 U.S.C. § 18031(a)). If a

state does not elect to operate an exchange or is not certified or approved to operate one, HHS will 

operate the exchange in that state. See Pub. L. No. 111-148, § 1321(c), 124 Stat. 186 (codified at 42 

U.S.C. § 18041(c)). To establish the federally operated exchanges, CMS reported that it aggregated 

funding from several sources including $300 million from its discretionary program management 

account in fiscal year 2012.

e

CMS awarded a total of $2.1 billion in grants in fiscal year 2013, but only the amount estimated to be 

available for obligation after March 1, 2013 based on OMB’s baseline—$628 million—was subject to 

sequestration, according to CMS. Sequestration also reduced another PPA of administrative costs 

associated with these grants by $2 million. The estimated OMB baseline established in its March 1 

report for both PPAs in this account was $868 million.

f

Medicare fee-for-service contracting operations are primarily funded through CMS’s program 

operations PPA within its discretionary program management account. Funding and sequestered 

amount reflect actual spending for this activity as reported by CMS. The amount sequestered from 

the entire program operations PPA was $134 million.

g

The federal administration PPA within CMS’s discretionary program management account is the 

primary source of funding for staff salaries and benefits; however, other accounts also provide 

funding to hire employees for specific purposes.

h

Funding and sequestered amount represent amounts enacted in the Consolidated and Further

Continuing Appropriations Act, 2013 (Pub. L. No. 113-6, 127 Stat. 198) as reported by CMS. The 

sequestrable base and reduction amounts that CMS calculated based on the annualized amount set 

out in the continuing resolution in effect as of March 1, 2013, were slightly higher ($778 million).

i

Funding and sequestered amount represent amounts enacted in the Consolidated and Further 

Continuing Appropriations Act, 2013 as reported by CMS. The sequestrable base and reduction 

amounts that CMS calculated based on the annualized amount set out in the continuing resolution in 

effect as of March 1, 2013, were slightly higher ($378 million).

j

To carry out Medicare program integrity activities, CMS uses several contractors, two of which 

include (1) the MACs that process and pay claims and are responsible for taking actions to reduce 

payment errors in their jurisdictions; and (2) Zone Program Integrity Contractors (ZPIC) that 

investigate potential fraud, which can result in referrals to law enforcement or administrative actions.

k

CMS program integrity activities are funded from the Health Care Fraud and Abuse Control (HCFAC) 

account through PPAs funded by direct spending and discretionary appropriations. Certain direct 

spending for Medicare program integrity was sequestered at 2 percent, of which only amounts 

obligated after April 1, 2013 were subject to sequestration. Funding and sequestered amount 

represent mandatory apportionments and amounts enacted in the Consolidated and Further 

Continuing Appropriations Act, 2013 for CMS activities as reported by CMS. The reported amounts 

do not include HCFAC funding for other agencies including the HHS Office of Inspector General or 

the Department of Justice. The sequestrable base and reduction amounts that CMS calculated based 

on the OMB baseline and annualized amount set out in the continuing resolution in effect as of March 

1, 2013, were higher.
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

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Spending reductions required by sequestration had effects on some CMS 

activities, such as Medicare beneficiary outreach, in fiscal year 2013. 

However, the effects of reductions to some activities, such as Medicare 

payments, are difficult to quantify in part because they are difficult to 

isolate from other changes that took place in fiscal year 2013.

CMS actions taken to implement sequestration reductions affected the 

frequency of certain surveys and affected certain state survey agencies’

budgets in fiscal year 2013. Specifically, officials from the Center for 

Clinical Standards and Quality (CCSQ), which is responsible for federal 

oversight of survey and certification, made policy changes that meant 

certain Medicare participating medical facilities were inspected less 

frequently.6

 6

CMS contracts with and provides federal funding allocations to state survey agencies to 

carry out the majority of survey functions for facilities participating in Medicare and 

Medicaid. States also contribute funds for the benefit they derive from facility compliance 

with federal quality standards and for determining compliance with state licensing 

requirements. Home health agencies, ambulatory surgical centers, hospices, and 

hospitals can choose to be inspected by an accrediting organization, such as the Joint 

Commission, or by states. CMS also has national contracts to carry out federally-directed 

surveys to either directly assist state survey agencies, substitute for state surveys in 

certain specialized areas (such as organ transplant hospitals or psychiatric hospitals), or 

assist CMS Regional Offices in conducting comparative surveys designed to check the 

accuracy and adequacy of surveys done by states.

CMS officials told us that they made these policy changes to 

ensure that state survey agencies were able to complete statutorily 

Sequestration 

Affected Some CMS 

Activities, but Effects 

of the 2 Percent 

Reduction to 

Medicare Payments 

and Cuts to Other 

Activities Are Difficult 

to Quantify

Sequestration Affected 

Some Survey and 

Certification Activities and 

Beneficiary Outreach 

Activities

Survey and Certification
Appendix II: Fiscal Year 2013 Sequestration at 

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required surveys.7 Except for frequency requirements that are mandated 

in statute, CMS establishes survey frequencies for other facility types 

based on available funding. For example, to implement sequester 

reductions, CMS officials reported that CMS reduced the frequency of 

psychiatric hospital surveys it conducts through a national contractor from 

once every 3 years to once every 4 to 5 years, which officials said freed 

funding for other activities.8 In a memorandum issued April 5, 2013, CMS 

instructed state survey agencies on how to prioritize their workloads in 

response to sequestration.9

 7

42 U.S.C. § 1395-3(g) (nursing home); 42 U.S.C. § 1395bbb(c) (home health agency). 

The frequency of surveys of Medicare participating nursing homes and home health 

agencies are identified in statute. States must survey each nursing home in their state at 

least every 15 months and, on average, all nursing homes every 12 months, and each 

home health agency at least every 36 months. 

For example, to cut down states’ workload, 

the operating division moved specialized organ transplant center surveys 

from states to a national contractor and reduced the frequency of these 

surveys from once every 3 years to once every 4 to 6 years. CMS also 

instructed states not to add nursing homes to the special focus facility 

(SFF) program in their state when an existing SFF nursing home has 

graduated from the program or has been terminated from Medicare 

participation. SFF nursing homes are poorly performing nursing homes 

within each state that are subject to two on-site surveys per year instead 

of one survey. As a result of the instruction not to replace SFF nursing 

homes, the number of such homes nationwide decreased from 152 when 

sequestration began to 62 as of March 2014, according to CMS officials. 

By reducing national contracts and support services, CMS limited the 

sequestration reduction of states’ Medicare provider survey and 

inspection funding, known as Medicare allocations, to an average of 3.2 

percent rather than imposing the full reduction on states, according to 

officials. We do not know the effect of the reduced oversight from state 

survey agencies and national contractors on patient safety or the quality 

of care provided by the health care facilities.

8

These surveys assess whether psychiatric hospitals meet special conditions of 

participation. CMS also reduced funding for other national contracts to implement 

sequestration reductions. 

9

The memorandum included changes in addition to those described. See Department of 

Health & Human Services, Centers for Medicare & Medicaid Services, S&C 13-23-ALL, 

FY2013 Sequestration Adjustments for Survey & Certification (Baltimore, Md.: Apr. 5, 

2013).
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Several state survey agency officials that we spoke to reported that, 

because they had little time to adjust their staffing and budget plans after 

CMS established their fiscal year 2013 Medicare allocations, the state 

survey agencies used state funds to mitigate some of the effects of 

reduced federal allocations. Specifically, officials from four of the five 

state survey agencies we spoke to said they needed more than the 

amount of their initial federal allocations in fiscal year 2013 and would use 

state funds to cover the difference.10 For example, officials from one state 

survey agency told us it needed more than the amount allocated for 

survey activities. The officials said the state survey agency moved state 

funds originally intended for other health-related activities to avoid staff 

reductions that would have affected its ability to complete the statutorily

required surveys.11 Officials from another state survey agency told us that 

as a direct result of sequestration reductions, 2013 was the first year the 

state needed more than the amount allocated to it by CMS.12 CMS 

reported that 15 of the 33 state survey agencies that had finalized their 

fiscal year 2013 expenditures as of March 2014 had spent all of their 

federal allocations and requested supplemental funding for fiscal year 

2013, compared to 7 supplemental requests from those same 33 states in 

2012.13

 10States generally rely on their own funds when they spend more than their initial federal 

allocations for survey activities, but may be reimbursed when CMS redistributes Medicare 

funds from states that spent less than their allocations.

As of March 2014, CMS could not determine how much funding 

would be available for redistribution. A reduction in funds available to 

CMS for redistribution could create additional pressure for states in 

allocating their own funds to cover survey and certification activities. For 

example, two states told us they would have to cut licensure activities 

funded solely by the state if CMS could not provide the supplemental 

funds to reimburse the state for funds used to complete required 

activities.

11CMS may penalize states that do not complete all of their workload for surveys with 

statutorily mandated frequencies by reducing the state’s Medicare funding allocation for 

the following year.

12The remaining state stated that sequestration did not affect any of its activities in 2013 

and it did not need to use any unmatched state funds.

13At the end of the federal fiscal year, CMS may provide supplemental funds to states that 

needed more than their initial federal allocations by redistributing funds from states that 

spent less than their allocations.
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The state officials we spoke to reported that they were able to complete 

the highest priority surveys and complaint investigations by spending a 

combination of their federal allocations and state funding. However, two 

reported difficulty carrying out all of their surveys with the amounts 

available. For example, officials from one state said they could not 

complete needed revisit surveys that serve to verify that a facility has 

corrected serious deficiencies. While CMS considers these activities a 

lower priority, they are still an important activity to ensure patient safety.

As a direct result of cuts made to implement sequestration reductions to 

discretionary funding in fiscal year 2013, call wait times increased for 1-

800-MEDICARE, a toll-free customer service line for Medicare 

beneficiaries to make inquiries about Medicare.14 Specifically, CMS cut 

funding to the 1-800-MEDICARE contractor, which reduced the number of 

customer service representatives available to answer calls. According to 

CMS, before sequestration callers waited about 2 minutes for their call to 

be answered. In the months after sequestration, average wait times 

increased to 5 and 6 minutes.

In some cases, the immediate and longer term effects of sequestration 

reductions on CMS’s operations and services to the public are hard to 

quantify because of the difficulty isolating the effects of sequestration 

from other factors. As a result, CMS officials told us that CMS was not 

able to routinely monitor the effects of sequestration.

Savings from the 2 percent sequestration reduction of Medicare 

payments and the effects of the cuts on overall Medicare spending, as 

well as Medicare providers, plans, and beneficiaries are unknown. The 

total amount of sequestered Medicare payments for fiscal year 2013 are 

not known because providers have up to 12 months to submit claims. 

CMS officials reported that $3.3 billion had been sequestered from $167 

billion in prospective payments to Medicare Advantage and prescription 

drug plans from April 2013 through March 2014. The total amount of 

sequestered funds will likely differ from the estimated $11.3 billion that the 

Office of Management and Budget (OMB) provided in its fiscal year 2013 

 141-800-MEDICARE is one of several activities CMS uses to educate beneficiaries so they 

can make informed health care decisions.

Beneficiary Outreach

Effects of Sequestration 

Are Difficult to Quantify for 

Some CMS Activities

Medicare Payments to 

Providers and Plans
Appendix II: Fiscal Year 2013 Sequestration at 

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sequestration report.15 As noted in the background of this report, OMB’s 

estimates for programs that are funded by permanent indefinite budget 

authority, including Medicare payments, were based on estimated outlays 

for fiscal years 2013 and 2014. Final payments for fiscal year 2013 will 

depend on the actual numbers and types of services used by 

beneficiaries during the sequestration period. Research examining the 

effects of previous Medicare payment cuts suggests that providers may 

attempt to offset cuts by providing more services or more expensive 

services. As a result, the cuts may not produce the expected Medicare 

savings.16

In addition, it is not possible to isolate the effect that the payment 

reductions had on providers’ revenues in fiscal year 2013 because 

payments to Medicare providers were affected by a number of factors, 

such as increases or decreases resulting from the annual rate-setting 

process17 and the implementation of certain statutory provisions affecting

payments.18

 15Office of Management and Budget, OMB Report to the Congress on the Joint 

Committee Sequestration for Fiscal Year 2013 (Mar. 1, 2013).

Similarly, it is not possible to attribute any changes in 

provider participation in the Medicare fee-for-service program or plan 

participation in the Medicare Advantage or prescription drug programs in 

2014 directly to sequestration reductions. Although CMS officials and 

provider association representatives that we spoke to agreed that 

isolating the effects of the 2 percent Medicare payment reductions is 

difficult, provider associations reported that the reductions will be 

detrimental to providers because they exacerbated other budgetary 

pressures, particularly for providers that rely on Medicare payments for 

16See, for example, Mireille Jacobson, Craig C. Earle, Mary Price and Joseph P. 

Newhouse, “How Medicare’s Payment Cuts For Cancer Chemotherapy Drugs Changed 

Patterns of Treatment,” Health Affairs, 29, no.7 (2010):1391-1399. Centers for Medicare & 

Medicaid Services, Office of the Actuary, Estimated Volume-and-Intensity Response to a 

Price Change for Physicians’ Services (1998).

17For example, while Medicare payment rates to physicians stayed constant from 2012 to 

2013, payment rates to home health providers decreased and rates for certain dialysis 

treatments and certain outpatient hospital services increased. 

18For example, payments to certain providers, such as hospitals determined to have an 

excess readmission rate and physical therapists providing certain services, were required 

to be reduced in fiscal year 2013. Pub. L. No. 111-148, § 3025, 124 Stat. 173 (codified at 

42 U.S.C. § 1395ww(q)) (hospital readmissions reduction program); American Taxpayer 

Relief Act of 2012, Pub. L. No. 112-240, 126 Stat. 2313, 2355 (codified at 42 U.S.C. § 

1395m(k)(7)) (increase in “reduction percentage” for certain multiple therapy services).
Appendix II: Fiscal Year 2013 Sequestration at 

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Page 47 GAO-14-452 2013 Sequestration

large portions of their revenues. For example, some hospitals have 

reported that the Medicare sequestration was one of several negative 

factors affecting hospital revenues that resulted in layoffs, decreased 

services, and delays in infrastructure investments in fiscal year 2013. A 

physician association reported that although the isolated effects on 

physicians from the first year of sequestration of Medicare payments are 

not detectable, the effects will likely be greater as cuts continue in future 

years and physicians face smaller Medicare payment increases and 

additional responsibilities associated with Medicare participation.19

Beneficiaries were partially shielded from the payment reductions made 

as a result of sequestration. The law did not allow Medicare participating 

providers to pass on the payment reductions to beneficiaries. All 

coinsurance and deductible amounts remained the same for 

beneficiaries. However, beneficiaries would have been financially liable 

for any increased cost sharing resulting from providers who provided 

more services, or more expensive services, to offset the sequestration 

cuts. Beneficiaries who use nonparticipating providers and receive 

payments directly from CMS in order to reimburse the provider did see 

those payments reduced, which required these beneficiaries to pay 

Based 

on anecdotes of physicians’ reactions to previous payment reductions, 

the association officials predicted that sequestration could contribute to 

shifts in physician practice away from specialties with a high proportion of 

Medicare patients relative to patients with other forms of payment. 

However, they noted that it is difficult to single out actions directly 

responding to sequestration. How these potential changes in provider 

behavior could influence Medicare beneficiaries’ access to health care 

remains to be seen.

 19Under current law, the sequestration of direct spending, including the 2 percent 

reduction of Medicare payments will continue through 2024. See 2 U.S.C. § 901a(6)(B).
Appendix II: Fiscal Year 2013 Sequestration at 

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more.20 A small proportion of practicing Medicare physicians are 

nonparticipating.21

Sequestration resulted in fewer funds for new initiatives, according to 

CMS officials, but the effects on operations and services to the public will 

not be known until future years, if at all. Budget officials explained that in 

most years CMS funds new initiatives after core activities have been 

funded, but in fiscal year 2013 few or no programs had funds available for 

new initiatives because of sequestration. For example, CCSQ officials, 

who are responsible for survey and certification, told us they could not 

continue efficiency initiatives that had saved money in prior years 

because they did not have funds to pay for the upfront activities 

involved.22 CCSQ also delayed a project to collect nursing home staffing 

data planned for fiscal year 2013 that was required but not separately 

funded by the Patient Protection and Affordable Care Act (PPACA).23

 20In Medicare, participating providers agree to accept the Medicare payment amount as 

payment in full and not to collect more than the Medicare deductible or cost-sharing 

amount from the beneficiary. Providers that choose to receive Medicare payments on a 

case-by-case basis at a lower Medicare payment amount are considered nonparticipating 

providers. Nonparticipating providers may charge up to 115 percent of the lower Medicare 

payment amount for nonparticipating providers. Beneficiaries are responsible for paying 

the difference between the nonparticipating provider’s charge and the Medicare payment 

amount for nonparticipating providers. 

To 

meet discretionary spending limits for program operations, CMS cut $15 

million from its information technology (IT) funding which delayed several 

system enhancements. However, it is difficult to quantify the forgone 

benefit of unfunded initiatives. For example, it is hard to predict the 

amount of savings CMS could have achieved from eliminating IT 

redundancies had IT system enhancements occurred. Moreover, budget 

officials said they could not identify all of the initiatives that CMS will not 

initiate as a result of funding reductions because program offices may 

have stopped bringing forward budget requests for new activities due to 

known budgetary constraints.

21As of January 2011, about 4 percent of physicians who received Medicare payments 

were nonparticipating. 

22For example, a prior efficiency initiative re-designed the survey process for dialysis 

centers. The survey redesign shortened the survey process for surveyors, thus saving 

money, according to CMS officials.

23See Pub. L. No. 111-148, § 6106, 124 Stat. 712 (codified at 42 U.S.C. § 1320a-7j(g)).

Fewer New Initiatives
Appendix II: Fiscal Year 2013 Sequestration at 

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The effect of sequestration on CMS’s staffing and operations is unclear 

because CMS has multiple sources of budget authority that may support 

payroll and benefits. CMS’s total full-time equivalents (FTE) increased 

from 5,926 at the beginning of fiscal year 2013 to 5,959 at the end of the 

year due in part to targeted hiring for activities related to increased 

responsibilities, including aspects of health care reform with funding 

provided by PPACA. For example, PPACA appropriated $10 billion for 

activities associated with CMS’s Center for Medicare and Medicaid 

Innovation over 9 years that supported 67 additional FTEs in fiscal year 

2013.24 However, CMS lost 120 FTEs funded through its primary salaries 

and benefits PPA—the federal administration PPA—and could not fill 

another 299 vacancies as a result of a hiring freeze it implemented to 

achieve sequestration reductions without requiring furloughs.25 CMS staff 

funded through this PPA carry out the majority of CMS activities, including 

implementation of the federal health insurance exchanges in 2013. CMS 

officials said that, in general, CMS offices are experiencing difficulties in 

terms of staff doing more work with fewer resources. The reduced staff 

and inability to hire new staff throughout the fiscal year to address 

increasing workload had a negative effect on operational time frames, 

according to officials. For example, CMS officials reported that CMS 

processing times for providers seeking certification for participating in the 

Medicare program increased from between 1 and 4 weeks to up to 6 

months due to the hiring freeze.

 24Pub. L. No. 111-148, 3021(f), 124 Stat.119, 394 (codified at 42 U.S.C. § 1315a(f)). The 

center was established to support the development and testing of innovative health care 

payment and service delivery models.

25Specifically, FTEs attributed to the federal administration PPA declined from 4,827 in 

March 2013 to 4,707 in October 2013, according to CMS.

CMS Staffing
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To plan for reductions of CMS’s discretionary funding, CMS’s Office of 

Financial Management (OFM), in consultation with the CMS Administrator 

and HHS budget office, identified high-level priority areas to protect from 

budget cuts. For example, one spending priority identified by the 

operating division for 2013 was federal health insurance exchange 

implementation in those states not electing to operate an exchange or not 

certified or approved to operate one. When sequestration occurred, CMS 

determined that it would not cut funding planned for this activity, including 

from within its discretionary program management account.26 CMS also 

prioritized funding for Medicare fee-for-service appeals because, officials 

said, cuts to these activities could delay their contractors’ ability to 

address appeals and result in increased costs in future years.27

 26Officials noted that Congress appropriated less than CMS requested to implement 

aspects of PPACA in fiscal year 2013 and they had already identified contingencies to 

fund the implementation when sequestration occurred. For example, HHS transferred 

funding from various accounts to the CMS program management account for this purpose.

Officials 

said funding for the durable medical equipment competitive bidding 

27The Medicare appeals process provides beneficiaries, providers, and suppliers the 

ability to dispute Medicare coverage and payment decisions. There are five levels of 

appeals: the first two are conducted by CMS contractors, the second two are carried out 

by other entities in HHS, and the fifth by Federal District Court. If CMS contractors are not 

able to decide level two appeals within 60 days, the appeal may be elevated to the next 

level. Elevation of appeals to higher level review and adjudication by entities outside of 

CMS, such as administrative law judges at HHS’s Office of Medicare Hearings and 

Appeals, is more expensive, according to CMS officials. Medicare has experienced large 

increases in appeals in recent years. 

CMS Sought to Limit 

Effects of 

Sequestration on 

Priority Areas, but 

Implementation 

Options Varied by 

Funding Structure

CMS Sought to Limit 

Effect of Sequestration on 

Priority Areas
Appendix II: Fiscal Year 2013 Sequestration at 

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program was also prioritized because CMS attributed savings to the 

program.28

CMS officials reported that their options for implementing sequestration 

reductions varied by the type of funding—discretionary versus direct 

spending—and application of sequestration rules. According to HHS 

officials and CMS officials from the Center for Medicare, CMS had no 

flexibility in implementing the Medicare payment reductions because, with 

limited exceptions, all payments had to be sequestered and sequestration 

rules dictated the formula, timing, and limitations on how CMS was to 

implement the reductions. Officials also reported having to reduce by 7 

percent grants made to states after March 1 to establish health insurance 

exchanges in accordance with OMB’s sequestration guidance for 

programs with permanent indefinite budget authority.29 In fiscal year 

2013, CMS awarded such grants to 25 states and the District of 

Columbia, but only those amounts obligated after March 1, 2013 were 

subject to sequestration, according to officials. Because sequestration 

began in the middle of the year, officials told us that CMS had to achieve 

the required reductions for state exchange grants by applying 

sequestration to the amounts obligated in the remaining months of the 

fiscal year, requiring it to reduce each grant made after March 1 by 7 

percent from the expected amount.30

In contrast, CMS officials told us the operating division had flexibility to 

implement reductions within the large PPAs contained in the discretionary 

program management account. In particular, they said that this funding 

structure provided flexibility within the program operations PPA to move 

Additionally, because the state 

insurance grants are structured as the only activity within their PPA, CMS 

could not reallocate the sequester reductions to other activities in order to 

spare the grants from the reductions.

 28GAO, Medicare: Review of the First Year of CMS’s Durable Medical Equipment 

Competitive Bidding Program’s Round 1 Rebid, GAO-12-693 (Washington, D.C.: May 9, 

2012).

29The affordable insurance exchange grants are made from an appropriation of “an 

amount necessary” to enable the Secretary of HHS to make awards. 42 U.S.C. § 

18031(a)(1).

30Sequestration also reduced another PPA of administrative costs associated with these 

grants by 5.1 percent.

Funding Structures and 

Prior Year Preparations 

Influenced Sequestration 

Implementation
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 52 GAO-14-452 2013 Sequestration

funds around the many activities funded by the PPA, including Medicare 

fee-for-service claims processing by MACs, contractor administration,

federal implementation of health insurance exchanges, provider 

education, beneficiary outreach, and many other initiatives. For instance, 

MAC funding through the program operations PPA was reduced by 2.4 

percent.31 This reduction ended up having had no effect on MAC 

operations because CMS needed less funding than expected in fiscal 

year 2013 for transition costs for new MACs and the awarding of two 

MAC contracts scheduled for the end of fiscal year 2013 was delayed 

until fiscal year 2014 for reasons other than sequestration.32 The two 

MACs we spoke to confirmed that sequestration had no effect on their 

contracts or ability to carry out any activities in their statements of work.33

CMS also reported using carryover funds to mitigate the effects of 

sequestration reductions when available. Through direct spending, funds 

are available to the Medicare integrity program within the Health Care 

Fraud and Abuse Control (HCFAC) account without fiscal year limitation, 

which may result in funds remaining available for obligation during the 

next fiscal year. According to officials, CMS had enough carryover funds 

from fiscal year 2012 program integrity activities to offset $13 million in 

discretionary fiscal year 2013 sequestration reductions in HCFAC funding 

for CMS, which minimized the effect on a medical review support 

contractor, Part D data analysis, and Medicaid and CHIP Business 

Information Solution project that were slated to lose funding due to 

sequestration.

34 CMS also used no-year funding remaining available for 

the Medicare-Medicaid Data Match Project (Medi-Medi)35

 31MACs also receive some funding from the HCFAC account.

to offset 

sequestration reductions of the program’s fiscal year 2013 funding. 

According to officials, available carryover balances also mitigated the 

32In fiscal year 2013, the operating division budgeted funds to transition to new MACs in 

case new contractors were selected during the most recent contracting round, but officials 

told us that because CMS primarily awarded contracts to existing MACs, they could use 

the transition funds to offset sequestration cuts.

33The statement of work defines the activities to be carried out by the contractor.

34Sequestration also reduced HCFAC funding for the HHS Office of Inspector General and 

the Department of Justice, according to CMS.

35Medi-Medi is a joint effort between CMS and states that participate voluntarily to identify 

providers with aberrant Medicare and Medicaid billing patterns through analyses of claims 

for individuals with both Medicare and Medicaid coverage. 
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 53 GAO-14-452 2013 Sequestration

reduction of an estimated $2.2 million to CLIA surveys.36

CMS officials noted, however, it is possible that carryover funds will not 

be available in future years to offset funding reductions to the extent they 

were in fiscal year 2013. For example, officials reported having used up 

much of the funding available from prior years for Medicare program 

integrity.

State survey 

agencies with which we spoke confirmed there were no reductions to their 

CLIA activities.

In addition to using carryover funds, certain offices told us that prior year 

initiatives helped them respond to the sequestration reductions. Officials 

in the Center for Medicare began considering how to implement specific 

percentage reductions to payments for Medicare fee-for-service claims as 

early as 2008 in response to proposals for Medicare cost reductions. 

They increased their preparation for sequestration of payments in late 

2011. Officials said that these early preparations helped the center 

implement payment reductions quickly through the various contractors 

that maintain their payment systems when sequestration occurred. In 

addition, CCSQ officials told us that, beginning in 2011, officials started a 

broad-based initiative to improve the efficiency and effectiveness in 

survey processes as they recognized a significant gap between an 

increasing workload and the funding amount typically allocated for survey 

and certification activity. This initiative, including corresponding outreach 

to state survey agencies, helped CCSQ plan for sequestration in fiscal 

year 2013.

 36CLIA surveys, conducted by state survey agencies, certify clinical laboratories and are 

funded solely by user fees.
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 54 GAO-14-452 2013 Sequestration

CMS officials said that it was difficult and time consuming to determine 

how to apply sequestration pursuant to the law and within changing 

budgetary parameters. In particular, CMS had difficulty determining all of 

the types of Medicare provider payments subject to sequestration and 

which Medicare funding was subject to special sequestration rules. For 

example, CMS officials initially thought that subsidies for the Program of 

All-inclusive Care for the Elderly (PACE) were exempt from sequestration, 

like certain Medicare low-income subsidy payments.37 Upon further 

discussion with OMB late in the planning process, CMS determined that 

these payments were not exempt and adjusted the plan payments 

accordingly. Officials said the adjustments accounted for a very small 

amount of PACE funding. The timing of sequestration and changing 

budgetary parameters also delayed CMS’s ability to make final planning 

decisions. For example, CMS based its initial sequestration planning 

decisions on the annualized amount set out in the continuing resolution in 

effect at the time sequestration was ordered. After the Consolidated and 

Further Continuing Appropriations Act, 2013,38

The timing of sequestration and related CMS guidance created 

uncertainty for some stakeholders. For example, CCSQ officials told us 

that they strive to limit uncertainty for states so the states can plan their 

budget adequately. This was difficult in fiscal year 2013 because 

sequestration took effect in March, which effectively doubled the 

percentage cut because it all had to be taken in the second half of the 

fiscal year. On April 5, 2013, CMS issued a memorandum informing 

states about sequestration reductions and actions states should take to 

implement the cuts. Although officials from several state survey agencies 

we spoke to described the timing of CMS’s communication regarding 

sequestration as the best it could have been, they still faced challenges 

adjusting their budgets. For example, one state survey agency told us it 

which provided a lower 

discretionary appropriation base than CMS used to calculate the 

sequestration reductions, CMS officials said they had to determine how to 

absorb the same amount of reductions, which then represented a larger 

portion of the appropriation, in the remainder of the fiscal year.

 37The PACE program serves frail, elderly individuals with the goal of keeping them in the 

community rather than long-term care institutions as long as medically and socially 

possible. Although three subsidies for low-income Medicare beneficiaries are exempted 

from sequestration by law—qualified individual premiums, Part D low income subsidies, 

and Part D catastrophic subsidies–PACE subsidies are not. See 2 U.S.C. § 906(d)(7).

38Pub. L. No. 113-6, 127 Stat. 198.

Complexity of CMS 

Programs and Timing of 

Sequestration Presented 

Challenges for CMS and 

Stakeholder Planning and 

Implementation
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 55 GAO-14-452 2013 Sequestration

received official notice of its allocation amount in May 2013, which left the 

state very little time to plan for absorbing the cut by the end of the fiscal 

year in September 2013. CMS informed providers and plans about the 

Medicare payment reductions following the sequestration order in March. 

In early May CMS issued additional guidance to Medicare Advantage and 

prescription drug plans regarding the application of reductions for various 

plan types. In this communication, CMS noted, for example, that the 

agency is prohibited from interfering in payment arrangements between 

plans and providers who contract with them. A hospital representative 

reported anecdotally that the timing of sequestration and CMS’s official 

communication to providers limited hospitals’ time to plan adequately for 

the reduced payments. In addition, hospital and physician representatives 

said that CMS’s guidance regarding payment reductions was not 

sufficient for them to understand how cuts were applied without additional 

clarification. See figure 5 for information on CMS actions related to 

Medicare payments and survey and certification.
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 56 GAO-14-452 2013 Sequestration

Figure 5: Timeline of CMS Actions Related to Sequestration of Medicare Payments and Survey and Certification
Appendix II: Fiscal Year 2013 Sequestration at 

the Centers for Medicare & Medicaid Services

Page 57 GAO-14-452 2013 Sequestration

For additional information, contact Kathleen King at (202) 512-7114 or GAO Contact kingk@gao.gov.
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 58 GAO-14-452 2013 Sequestration

Figure 6: Office of Elementary and Secondary Education Mission and Fiscal Year 2013 Sequestered Funding

Note: Dollar amounts do not add to $22 billion due to rounding.

A range of programs fall under the purview of OESE, including academic 

improvement and teacher quality programs, early learning programs, 

school support programs, and student achievement and school 

accountability programs. Many of these programs are authorized by the 

Elementary and Secondary Education Act of 1965 (ESEA),1 as amended, 

and programs primarily fund grants to state educational agencies or local 

educational agencies (LEA) nationwide.2

 1

Pub. L. No. 89-10, 79 Stat. 27 (codified as amended at 20 U.S.C. § 6301 et seq.).

Through these programs, 

federal funds are either distributed to grant recipients based on a 

predetermined formula, referred to as formula grant programs, or 

awarded on a competitive basis.

2

We use the terms states to refer to state educational agencies and we use the terms 

districts or school districts to refer to local educational agencies.

Appendix III: Fiscal Year 2013 Sequestration 

at the Office of Elementary and Secondary 

Education

Mission and Budget 

Overview
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 59 GAO-14-452 2013 Sequestration

To address our research objectives, we identified and reviewed relevant 

agency documents and budget data for fiscal years 2012 and 2013 and 

conducted interviews with Education officials to corroborate the 

information provided. Among the programs administered by OESE, we 

selected two grant programs—Title I and Impact Aid—to determine how 

sequestration affected these programs and to collect more in-depth 

information related to our research objectives. These two programs 

accounted for about 72 percent of OESE fiscal year 2013 funding prior to 

sequestration and provide numerous grants to states and LEAs. See 

Table 5 for an overview of the two selected grant programs.

Table 5: Overview of Selected Grant Programs Administered by OESE 

Selected 

programs Overview Funding type

Fiscal year 2013 

sequestration

Title I Title I, authorized under Title I, part A of the Elementary and Secondary 

Education Act of 1965 (ESEA), as amended, is a formula grant program 

that provides funding, through states, to LEAs to expand and improve 

educational programs in schools with high concentrations of students 

from low-income families.

Federal funds are allocated to LEAs through four statutory formulas. The 

formula for basic Title I grants is generally based on the number of 

children from families below the poverty level who reside in each LEA, 

and how much the state spends per pupil on education, among other 

factors. Title I funds are provided to states, which distribute funds to 

LEAs. 

Discretionary Funding prior to 

sequestration: $14.5 

billion

Sequestered amount: 

$756 million 

Impact Aid Impact Aid, authorized under Title VIII of the ESEA, is a formula grant 

program that provides assistance to local school districts that are 

affected by federal activities. Impact Aid grants assist school districts that 

have lost property tax revenue due to the presence of tax-exempt federal 

property (section 8002) or that have experienced increased expenditures 

due to the enrollment of federally connected children (section 8003).

a

Section 8003 provides assistance to districts with concentrations of 

children residing on Indian lands, military bases, low-rent housing 

properties, or other federal properties, as well as concentrations of 

children who have parents on active duty in the uniformed services but 

who do not live on federal property. Funds are awarded directly to school 

districts in accordance with a formula specified in the ESEA. The section 

8003 formula for allocating funds is generally based on the numbers and 

types of federally connected children in the district, and other factors. In 

addition to these basic support payment grants, Impact Aid also includes 

additional grants, such as those that support construction and repair of 

school buildings in districts serving high percentages of certain federally 

connected children as well as grants that provide additional support to 

districts that educate federally connected students with disabilities. 

Discretionary Funding prior to 

sequestration: $1.3 

billionb

Sequestered amount: 

$67.5 million

Source: GAO analysis of agency documents and budget data.

a

Federally connected children include children who (a) live on federal property with a parent 

employed on federal property within the district or with a parent who is an accredited foreign military 

officer; (b) live on federal property and have a parent on active duty in the uniformed services; (c) 

reside on Indian lands; (d) do not live on federal property but have a parent on active duty in the 
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 60 GAO-14-452 2013 Sequestration

uniformed services or a parent who is an accredited foreign military officer; (e) reside in low-rent 

housing; (f) reside on federal property but do not fit into the other categories; or (g) do not reside on 

federal property but have a parent employed on federal property situated in the same state as the 

district. 20 U.S.C. § 7703(a)(1).

b

Although the budget numbers in the table include all Impact Aid funding, when we refer to Impact Aid 

elsewhere in this report, we will only be referring to the Impact Aid grants that provide funding for 

districts serving federally connected children–section 8003(b), Basic Support Payments (20 U.S.C. § 

7703(b)).

We selected Title I because it is the largest grant program administered 

by OESE,3 and we selected Impact Aid because funding from this 

program could make up a significant portion of some eligible districts’

overall funding levels.4 We analyzed data provided by Education on Title I 

and Impact Aid grants to determine the amount of program funding 

allocated to states and school districts for fiscal year 2013. To assess 

data reliability, we reviewed information previously obtained for our 

agency-level review; asked officials about the source of any information 

provided and a description of any known limitations or purposes for which 

the data being provided should not be used; and interviewed 

knowledgeable officials as needed. We determined these data to be 

sufficiently reliable for the purposes used in this report. Using grant 

information and other data, we identified grant recipients that received 

large amounts of Title I or Impact Aid funding, relied heavily on this grant 

funding, or both. We then selected a purposeful sample of seven school 

districts for interviews based on variation in the grant amounts they 

received, each districts’ reliance on grant funding, and geographic 

location. Because we used a nonrandom, purposeful sample, the results 

of our analysis of the selected school districts cannot be generalized to 

other school districts nationwide. Our selected districts included three 

Title I districts located in Mississippi, Ohio, Texas; and four Impact Aid 

districts located in Arizona, South Dakota, and Texas. Two of the Impact 

Aid districts serve military children and the other two serve children 

residing on Indian lands. In addition, we interviewed two national 

associations representing states and districts receiving Title I and Impact 

Aid grants and six state Title I grant administrators.

 3

20 U.S.C. §§ 6311-6339. Throughout this report we refer to Title I, Part A of ESEA, as 

amended as “Title I.” Part A of Title I addresses improving basic programs operated by 

local educational agencies. 

4

20 U.S.C. §§ 7701-7714.
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the Office of Elementary and Secondary 

Education

Page 61 GAO-14-452 2013 Sequestration

Sequestration resulted in cuts of about 5 percent to Title I and Impact Aid 

grant funding that supports services to thousands of school districts 

nationwide. These sequestration cuts affected grant recipients in different 

ways and contributed to some reduced services to students. Title I is the 

largest grant program administered by OESE, with grants issued to over 

53,000 schools in districts nationwide in fiscal year 2013.5

Table 6: Allocations of Title I Grant Funding for Fiscal Year 2013 by District Poverty 

Rate 

The program 

provides much of its total funding to districts serving high concentrations 

of students from low-income families, to provide services to help improve 

the academic achievement of students in high-poverty schools or 

students at risk of academic failure (see table 6).

Districts by 

poverty rate 

Number of 

districts 

receiving Title I 

Total amount of 

Title I payments 

by poverty rate

Percentage 

of total Title I 

dollars

Number of 

eligible 

children by 

district 

poverty rate

0-15% 4,866 $1,610,660 11.94 1,719,375

15-25% 4,611 $3,737,959 27.21 3,552,850

Over 25% 3,639 $8,141,872 60.35 6,309,201

Source: Department of Education, fiscal year 2015 budget request.

 5

U.S. Department of Education, Accelerating Achievement and Ensuring Equity, Fiscal 

Year 2015 Budget Request (March 2014).

Sequestration Cuts to 

OESE’s Funding 

Resulted in Some 

Reduced Services 

Provided by Selected 

School Districts and 

Hindered Some 

Administrative 

Activities

Cuts to Grant Funding 

Affected Grant Recipients 

in Different Ways and 

Reduced Some Services 

for Selected School 

Districts
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 62 GAO-14-452 2013 Sequestration

For Impact Aid, many districts receive funding from this program—a little 

over 1,100 districts serving almost 930,000 federally connected students 

nationwide in fiscal year 2013 (see figure 7).

Figure 7: Percentage of Federally Connected Children in Districts Receiving Impact 

Aid Nationwide in Fiscal Year 2013

Notes: Percentages do not add to 100 due to rounding.

The “military” category includes eligible children of active duty service members and foreign military 

officers living on or off federal property.

The “civilian” category includes eligible children living on federal property with a parent who works on 

federal property within the district, eligible children living off federal property but who have a parent 

employed on federal property within the state, and children living on federal property but who do not 

fall into another category. See 20 U.S.C. § 7703(a)(1) for all eligibility criteria.

Effects of sequestration on school districts varied due to the timing of 

funding disbursements to grant recipients. In general, Title I grant 

recipients felt the effects of sequestration later than districts that received 

Impact Aid grants. Specifically, the sequestration cuts affected Impact Aid 

recipients in school year 2012-2013, while the cuts did not affect Title I 

recipients until school year 2013-2014. This is, in part, due to when 

Education disburses funding to states and school districts. Education 

typically disburses Title I grants to states, for disbursement to school 
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 63 GAO-14-452 2013 Sequestration

districts, in July and October each year.6 Education disbursed some of its 

Title I fiscal year 2013 funding to states in October 2012, prior to 

sequestration, for school year 2012-2013. Education then applied the 

entire amount of the sequestration cuts for fiscal year 2013 to the next 

grant disbursement, in July 2013, for school year 2013-2014. Therefore, 

the sequestration cuts did not affect the October 2012 disbursement used 

for the 2012-2013 school year. In contrast, Education disbursed a 

majority of the fiscal year 2013 funding for Impact Aid in October and 

November 2012, during school year 2012-2013, prior to sequestration, 

and applied the sequestration cuts to grant disbursements made in May 

2013.7

Another reason sequestration affected districts differently is that the 

relative importance of Title I and Impact Aid grant funding in districts’

budgets varies greatly. School district budgets are generally funded by 

multiple sources and are determined by many factors, including local 

taxes, state government contributions, and other federal financial support 

sources. Moreover, the relative contribution of these resources varies 

According to Education officials, delaying the cuts from the 2013 

sequestration for the larger state grant programs, such as Title I, enabled 

recipients to plan and may have tempered some of the negative 

consequences of sequestration.

 6

In Education’s annual appropriation acts, the Title I program typically receives forward 

funding and an advance appropriation. Forward funding is budget authority that is made 

available for obligation beginning in the last quarter of the fiscal year for the financing of 

ongoing activities during the next fiscal year. An advance appropriation is budget authority 

provided in an appropriation act that becomes available one or more fiscal years after the 

fiscal year for which the appropriation act was enacted. For example, of the funding 

provided to carry out Title I in the Department of Education Appropriations Act, 2012, a 

certain portion was made available on July 1, 2012 (in fiscal year 2012), and another 

portion was made available on October 1, 2012 (in fiscal year 2013). The funding that was 

made available on July 1, 2012 was forward funding and the funding that was made 

available on October 1, 2012 was an advance appropriation. This funding structure was 

carried forward for fiscal year 2013 in the Consolidated and Further Continuing 

Appropriations Act, 2013. See Department of Education Appropriations Act, 2012, Pub. L. 

No. 112-74, div. F, tit. III, 125 Stat. 786, 1090-1103 (2011), Consolidated and Further 

Continuing Appropriations Act, 2013, Pub. L. No. 113-6, div. F, § 1101(a)(4), 1102-03, 127 

Stat. 198, 412-13.

7

Unlike Title I, Impact Aid did not receive forward funding or an advance appropriation in 

Education’s appropriation acts for fiscal years 2012 or 2013. Funding was made available 

in those acts only for the fiscal year for which the appropriation act was enacted. 

According to agency officials, Education disbursed Impact Aid funds in increments during 

fiscal year 2013, with disbursements made in October and November 2012 and May 

2013. 
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 64 GAO-14-452 2013 Sequestration

among school districts. As a result, the effects of grant reductions from 

Education vary for grant recipients based on their respective situations, 

including the availability of other resources to fill any budget gap. While 

the receipt of Title I grants is widespread among districts, funds from this 

program generally account for a small portion of most districts’ overall 

funding. Though the proportion can vary by district, for fiscal year 2010, 

the most recent year for which data are available, Title I made up about 3 

percent of total elementary and secondary education funding from all 

sources nationwide, according to the National Center for Education 

Statistics. The extent to which districts rely on Impact Aid funding also 

varies, with one district’s reliance as high as 88 percent of its fiscal year 

2013 operating budget, according to Education data.

In addition, five of the districts we contacted said that it is difficult to 

isolate the effects of sequestration cuts solely to Title I or Impact Aid 

because the districts had also experienced reductions to state funding 

and to other federal programs and activities due to sequestration. These 

various state and federal funding cuts the districts experienced have led 

to reductions in staffing levels, transportation, and school programs, as 

well as districts having to shift funding from other sources to support 

programs affected by the cuts, according to district officials. For example, 

officials from all of the selected districts that received Title I or Impact Aid 

grants mentioned how the districts had experienced reductions to their 

state funding prior to sequestration. In one case, district officials told us 

that, prior to sequestration, from 2010-2012, the district had to lay off 

teachers in order to balance the district’s budget after the state cut 

funding to education; however, additional local tax revenue allowed the 

district to avoid further layoffs when sequestration occurred. Related to 

reductions to other federal programs and activities, officials from one 

district reported that in addition to Impact Aid, the district also 

experienced funding cuts to other federal programs due to sequestration 

such as special education, vocational education, Indian education, and 

Title I, among others. While this district received about 25 percent of its 

funding from Impact Aid, the other federal funding sources contributed an 

additional 23 percent to its total budget in fiscal year 2013. In another 

example, an Impact Aid district we contacted reported that the 

Department of Defense cut funding to bus routes, among other things, 

which the district was then forced to fund, placing a further strain on the 

district’s budget.

Even though sequestration cuts affected grant recipients in different ways 

and the effects are difficult to isolate, we found from our interviews with 

state officials and the seven school districts we contacted that cuts from 
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 65 GAO-14-452 2013 Sequestration

sequestration had contributed to some extent to reductions in services to 

students.

Title I funding comprised between 5 and 18 percent of the budgets of the 

three Title I districts we selected. Even though this was not a large 

percentage of the districts’ budgets, cuts to Title I funding contributed to 

decisions to reduce staff positions and professional development 

opportunities, reduce or delay academic programs, and defer 

maintenance and technology upgrades, according to the officials we 

spoke with.8

• One Title I district reported that cuts to Title I funding contributed to 

decisions to reduce staffing levels by not filling vacated positions in 

certain areas. Officials told us that the loss of funding contributed to 

the decision to reduce the number of reading and math specialists 

which provide extra instruction to students and assist teachers in 

improving their teaching methods. Since this district has a large 

population of low income students, officials were concerned that the 

loss of these specialists could cause students in need of additional 

tutoring to fall further behind.

Specifically, for the three Title I districts we contacted, 

officials provided this information:

• Officials from two of the selected districts told us the funding 

reductions contributed to decisions to reduce professional 

development opportunities for their staff. Officials from one of the 

districts thought these reductions could affect teaching staff 

preparedness in advance of implementing new academic standards, 

which would then affect the instruction that the district’s students 

received.

• Two districts reported that Title I reductions contributed to decisions to 

reduce or delay some academic or after-school programs. For 

example, one district reported that the loss of funding contributed to 

the decision to reduce after-school programs, while officials from 

another district told us the reductions contributed to the decision to 

delay implementation of new academic programs designed to improve 

the district’s academic performance.

 8

We asked school district officials to identify specifically the effects of sequestration.

However, as previously discussed, it is difficult to isolate these effects due to other federal 

and state funding reductions. In addition, because of the statutory formula for Title I, a 

reduced Title I allocation could be a result of factors other than sequestration, such as 

decreases in the formula count of children or reduced state per pupil expenditures.

Effects on Select LEAs 

Receiving Title I
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 66 GAO-14-452 2013 Sequestration

• All three Title I districts reported that Title I reductions contributed to 

decisions to defer maintenance and technology upgrades.9

Impact Aid funding represented anywhere from 15 to 35 percent of the 

total budget of the four Impact Aid districts we selected. District officials 

told us that they had to take a number of steps to absorb the reductions in 

Impact Aid. Two of these selected districts are located entirely on federal 

lands, while federal lands made up 80 percent of a third district, according 

to officials from each of the respective districts. As a consequence, these 

districts do not have a local tax base to mitigate the loss of federal 

funding. According to district officials, to absorb the cuts to Impact Aid in 

the 2012-2013 school year they had to reduce staff positions and 

professional development opportunities, increase class sizes, reduce 

school programs, defer maintenance and technology upgrades, and 

reduce transportation. Specifically, for the four Impact Aid districts we 

contacted, officials provided this information:

For 

example, officials from the three districts said their district delayed 

technology upgrades with one official describing the district 

technology as aging.

• Three districts reported that they had to reduce staffing levels, 

primarily through attrition and not filling vacated positions, including 

those for teachers and aides. Officials from one of these districts 

reported having to reduce their instructional staff positions by 14 fulltime equivalents. Officials from these districts told us that they 

primarily reduced staffing levels by not replacing departing staff.

• Four of the districts reported having to reduce professional 

development opportunities. One district official told us that, as a 

consequence, there was concern the district will be unable to support 

its teachers during a time when the official thought there were sizable 

changes in the expectations for how the teachers delivered 

instruction.

• Three districts reported having to increase class sizes. For example 

officials from one of the districts reported increasing elementary 

school classes by an average of two or three students.

• Three of the selected districts told us they reduced school programs, 

which included reductions to art, music, or athletic programs. For 

 9

While Education officials said that Title I funds may not be used to directly fund some 

activities, such as capital improvements, officials from two districts said that the reductions 

to Title I grants caused them to shift available funds according to the districts’ needs, 

which may have contributed to the effects district officials described to us.

Effects on Select Districts 

Receiving Impact Aid
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 67 GAO-14-452 2013 Sequestration

example, officials from one of the districts on Indian lands told us that

they reduced the program teaching the Navajo language and culture–

a program that is in high demand in their district.

• Four districts reported needing to defer maintenance and technology 

upgrades because of sequestration. For example, officials from one 

district reported that they were only performing emergency 

maintenance. In addition, these officials reported that deferring 

maintenance on a roof at one of the high schools led to flooding in 

three of the classrooms. In another example of deferred maintenance, 

district officials from another district told us they reduced funding for 

maintenance on their large fleet of buses. These officials told us that 

they were concerned about the reductions in maintenance because 

the bus routes cover a large geographic area over sections of 

unfinished roads, which places a strain on the bus fleet. In addition to 

deferring maintenance, officials from this district also described 

deferring upgrades to the district’s technology. Officials expressed 

concern over the district’s ability to implement new educational 

standards and assessments without the upgrades considering that the 

new standards rely on using technology.

• Two of the selected districts reported reducing or eliminating 

transportation routes, though for one of the districts state cuts from 

prior years also contributed to this decision. These districts also said 

that as a consequence of route reductions and eliminations, some 

students travelled further to reach their bus pickup points which, for 

one district, caused students to miss school. One district also reported 

that the district had to eliminate bus routes for students who attended 

after-school tutoring and academic enrichment programs.

Agency-wide cuts in administrative expenses due to sequestration 

resulted in reduced OESE staffing levels and required OESE to spend 

less on travel and other expenses, which OESE officials said led to 

increasing workloads for staff and reductions in some grant oversight 

activities. For example, according to OESE officials, decreases in hiring 

since 2011,10

 10According to Education officials, the agency had been reducing its administrative 

spending, including reductions to administrative spending for OESE, since it finished 

awarding all the funds appropriated under the American Recovery and Reinvestment Act 

of 2009 at the end of fiscal year 2010.

which were exacerbated by sequestration, have led to 

increased workload for current staff and may have contributed to staff 

Sequestration Further 

Reduced OESE’s Staffing 

Levels and Hindered 

Some Grant

Administration Activities
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 68 GAO-14-452 2013 Sequestration

burnout. Overall, OESE lost 10 staff positions in fiscal year 2013, 

resulting in a total of 233 staff by the end of the fiscal year.

OESE also reported that from fiscal year 2012 to fiscal year 2013 it 

experienced a 47 percent reduction to its travel budget,11

Overall, OESE officials were not certain whether they could determine the 

extent to which sequestration has affected OESE’s progress toward 

achieving some of its performance and priority goals because 

achievement of some goals are dependent on many factors, such as the 

actions of states or school districts, as well as budgetary resources. For 

example, one of the agency’s priority goals for elementary and secondary 

education, which is supported by some OESE programs, is to improve 

learning by ensuring that more students have an effective teacher. 

Education’s target goal is that a majority of states will have developed 

and adopted statewide requirements for comprehensive teacher and 

which affected 

its ability to conduct grantee oversight and technical assistance. For 

example, according to OESE officials, due to sequestration cuts, they had 

to conduct about four to five fewer on-site compliance reviews for the 

Impact Aid program in fiscal year 2013, which also reduced the amount of 

technical assistance that would have been provided to grant recipients by 

way of these reviews. Officials said that while some grant oversight and 

technical assistance can be done remotely, it is also necessary to be on 

the ground to review actual documents for compliance reviews and to 

build strong working relationships with grantees. Additionally, OESE 

officials said they offered technical assistance via webinars to assist 

grantees or grant applicants in lieu of on-site visits or attending technical 

conferences. However, officials were concerned that applicants may be 

more comfortable asking questions privately rather than during a webinar 

session with other grantees listening in on the conversation. As a result of 

these changes to OESE’s delivery of technical assistance, officials were 

concerned, for example, that there could be an increase in late Impact Aid 

grant applications in the future, which could subject grantees to a penalty 

and reduce their funding. The reductions to the travel budget also 

reduced OESE’s ability to provide general outreach, such as by 

presenting at conferences and sending staff to conferences for training, 

among other travel needs.

 11According to Education officials, OESE’s travel budget declined from $822,000 in fiscal 

year 2012 to $436,000 in fiscal year 2013.
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 69 GAO-14-452 2013 Sequestration

principal evaluations and support systems, and at least 500 school 

districts will have implemented these evaluations and systems, by 

September 30, 2013. The agency’s fiscal year 2013 Annual Performance 

Report released in March 2014 showed that while the agency has results 

for one of three metrics related to this goal,12 results for the remaining two 

metrics were forthcoming, pending the release of state progress reports. 

Furthermore, the report cited challenges, which could be unrelated to 

federal budget constraints, that could hinder the achievement of this 

priority goal including districts’ and states’ current fiscal situation; potential 

changes in leadership; scaling up of systems in a relatively short time 

frame; and coordination among the agency’s programs to ensure 

consistency of policy and communication.

In response to sequestration, OESE followed the plan set out by 

Education, which included the reductions in Education’s overall 

administrative accounts and OESE’s grant programs. OESE officials told 

us that planning for sequestration started at the top of the agency and 

filtered down to the agency’s components. Officials told us they were 

informed about Education’s budget plans in a series of meetings with the 

agency’s budget office.

Due to sequestration, officials told us OESE reduced staffing by limiting 

the hiring of new staff to replace those that departed. Officials told us they 

were required to follow a process implemented agency-wide for approving 

personnel actions in which components within the agency were to submit 

hiring plans for approval that prioritized proposed personnel actions along 

with a description of the effects of not fulfilling the proposed positions. 

The Office of Management, the Budget Service, and the Office of the 

Deputy Secretary were required to coordinate in approving high-priority 

personnel actions while also allowing the agency to operate within 

sequestration budget levels. OESE officials told us this meant that OESE, 

in some cases, replaced senior level staff with lower paid entry level staff 

in order to allow the agency to fill more of the vacated positions. By 

implementing this agency-wide personnel action, along with other actions 

 12U.S. Department of Education, Fiscal Year 2013 Annual Performance Report and Fiscal 

Year 2015 Annual Performance Plan (March 2014). For one metric, the results showed 

that 23 states (out of a target of 26) had approval for evaluation system guidelines at the 

end of fiscal year 2013. 

To Plan and 

Implement 

Sequestration, OESE 

Followed AgencyWide Protocols, While 

Specific Grant 

Requirements Limited 

Its Flexibility in 

Allocating Grant 

Funds
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 70 GAO-14-452 2013 Sequestration

to achieve administrative savings, Education avoided furloughs in fiscal 

year 2013.

While there were staff reductions, officials told us that OESE received 

more funding for training in fiscal year 2013 in order to better prepare staff 

for working with fewer resources. Officials described how OESE 

developed a needs assessment for individual staff and, then, if the 

assessment identified an area of need that affected that staff member’s 

performance plan, OESE prioritized training to address that need. Overall, 

officials thought OESE would be stronger in the long run because of the 

commitment to training their staff.

OESE officials said they followed certain priorities in implementing the 

sequestration cuts to grants awarded through a competitive process. For 

these grants, OESE officials said, agency regulations generally require 

components to prioritize funding of existing grants over new grants. As a 

consequence, officials overseeing these grant programs only awarded 

new grants if there were funds remaining for the program after all of the 

existing grants were funded. Officials then had the option to fund new 

grants to qualified applicants remaining from the previous year. Officials 

could also open a grant to new competition if there were not sufficient 

numbers of qualified applicants from the previous year or if the grant 

program had a new policy priority. Agency officials could not quantify how 

many fewer competitive grants were issued due to sequestration. By 

contrast, OESE had limited flexibility in determining how to allocate 

reductions to formula grants, such as Title I or Impact Aid, because 

specific eligibility criteria and formulas for allocating grant funds are 

established by law and Education is required to provide funds to grantees 

that meet the statutory criteria.13

 13Title I allocations to districts are generally based on the number of students from families 

below the poverty level who reside in each LEA and how much that state spends per pupil 

on education, among other factors. Similarly, the Impact Aid statute allocates grant 

funding based on a variety of factors, including the number and type of federally 

connected children as well as how much that district spends per pupil on education. Other 

statutory provisions include “hold harmless” and “minimum state grant” requirements. For 

Title I, for example, the hold harmless provision requires that an eligible LEA receive a 

minimum percentage of that LEA’s grant total from the previous year, depending on the 

LEA’s school-age poverty rate. 20 U.S.C. § 6332(c). The Title I minimum state grant 

provisions require that each state receive a minimum grant amount, generally expressed 

as a percentage of the total amount allocated to states, among other factors. See, e.g., 20 

U.S.C. §§ 6333(d), 6335(e).
Appendix III: Fiscal Year 2013 Sequestration at 

the Office of Elementary and Secondary 

Education

Page 71 GAO-14-452 2013 Sequestration

As part of implementing sequestration of the Title I and Impact Aid 

programs, OESE officials said they informed grantees about 

sequestration by disseminating information on the potential reductions 

through advocacy organizations and states. According to officials, OESE 

disseminated information to grantees whenever the information became 

available through a variety of means including the National Association of 

Federally Impacted Schools (NAFIS), an advocacy organization 

representing districts receiving Impact Aid, and the National Council for 

Impacted Schools. OESE also communicated with state educational 

agencies, such as through each agency’s chief state school officer. In 

addition, OESE officials disseminated information through Education’s 

relevant e-mail list. As an example of how grant recipients were informed 

about sequestration, in a July 2012 letter Education informed the chief 

state school officers of the potential timing of the sequestration for 

formula grant programs to help the states plan for sequestration, should 

the reductions occur. Specifically, among the grants referenced, the letter 

informed the chief state school officers that districts receiving Impact Aid 

would absorb their funding cuts during the 2012-2013 school year, while 

for Title I districts sequestration would not be implemented until the 2013-

2014 school year. Both representatives from NAFIS and select state 

representatives we spoke with through the National Title I Association 

confirmed having received this communication from Education. The chief

state school officers also provided examples of other communication from 

Education, but also noted that, while Education provided what information 

it could to help with planning, it was difficult to predict final funding levels 

due to the complexity of the Title I formula.

For additional information, contact Melissa Emrey-Arras at (617) 788- GAO Contact 0534 or EmreyArrasM@gao.gov.
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 72 GAO-14-452 2013 Sequestration

Figure 8: Office of Public and Indian Housing Mission and Fiscal Year 2013 Sequestered Funding

Within PIH, we selected three programs to collect more in-depth 

information related to our research objectives (see table 7). We selected 

the Housing Choice Voucher program and the Public Housing Operating 

Fund because they are the two largest programs by funding within PIH 

and serve a large number of very low-income households. We selected 

the Indian Housing Block Grant (IHBG) program because it is the largest 

program by funding within PIH primarily serving Native Americans.

Appendix IV: Fiscal Year 2013 Sequestration 

at the Office of Public and Indian Housing

Mission and Budget 

Overview
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 73 GAO-14-452 2013 Sequestration

Table 7: Overview of Selected Public and Indian Housing Programs

Selected programs and 

activities Overview Funding type

Fiscal year 2013 

funding

Housing Choice Voucher 

program

The voucher program subsidizes private-market rents for 

approximately 2 million low-income households. HUD pays 

landlords a subsidy that generally is equal to the difference 

between the unit’s rent and 30 percent of the recipient 

household’s adjusted income. HUD also pays an 

administrative fee, based on a formula, to about 2,300 local 

public housing agencies (PHA) to manage the program. 

Discretionary Funding prior to 

sequestration: $18.9 

billiona

Sequestered amount: 

$938 million

Public Housing Operating 

Fund

Through the operating fund, HUD provides subsidies for 

operating and maintaining public housing to about 3,100 

PHAs, which administer the subsidies on HUD’s behalf. The 

housing agencies provide public housing for approximately 

1.1 million low-income households.

Discretionary Funding prior to 

sequestration: $4.3 

billionb

Sequestered amount: 

$199 million

Indian Housing Block 

Grant program (IHBG)

Through IHBG, HUD provides formula grants to 571 eligible

Indian tribes or their tribally-designated housing entity (TDHE) 

for a range of affordable housing activities, including housing 

development, assistance for housing developed under the 

program’s predecessor, and housing services for eligible 

families and individuals.

Discretionary Funding prior to 

sequestration: $649 

million

Sequestered amount: 

$33 million

Source: GAO analysis of HUD documents and budget data.

a

$253 million of the program’s funding, which was for HUD-Veterans Affairs Supportive Housing, was 

exempt from sequestration.

b

On March 1, 2013 OMB calculated the sequestrable base and reduction amounts based on the 

annualized amount set out in the continuing resolution then in effect ($4.0 billion). On March 26, 

2013, the Consolidated and Further Continuing Appropriations Act, 2013, Pub. L. No. 113-6, 127 Stat. 

198, 434 (2013), was enacted, providing increased funding for the Public Housing Operating Fund 

($4.3 billion). This additional funding was not subject to sequestration.

To obtain information on the steps HUD took to plan for and implement 

sequestration, we interviewed officials from PIH, including officials from 

the Offices of Housing Voucher Programs, Public Housing Programs, and 

Native American Programs. To assess the effect of sequestration on the 

number of households served by the voucher program and the number of 

public housing units operated and to assess the effect of sequestration on 

PHA reserve levels, we analyzed HUD data from 2011 to 2013 for these 

programs. We assessed the reliability of these data by reviewing agency 

data documentation, interviewing officials, and testing for missing values, 

outliers, and obvious errors. We determined these data to be reliable for 

the purposes of this report. To obtain information about the steps PHAs 

took to implement sequestration for the voucher program and the public 

housing program, we interviewed officials from four PHAs, two national 

associations of PHAs, and the National Low Income Housing Coalition. 

We selected the PHAs to provide diversity in size, geographic location, 

and use of set-aside funding to avoid terminations in their voucher 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 74 GAO-14-452 2013 Sequestration

program. To obtain information about the steps tribes and tribally 

designated housing entities (TDHE) that receive IHBG funding took in 

response to sequestration, we interviewed officials from four tribes or 

TDHEs and two associations of tribes and TDHEs.1 We selected the first 

IHBG recipient in each quartile of grant funding based on fiscal year 2014 

grant amounts.2

 1

A TDHE is either (1) a former Indian Housing Authority that managed Native American 

housing programs under the U.S. Housing Act of 1937 Act that continued operations to 

meet the requirement of the Native American Housing Assistance and Self-Determination 

Act of 1996 (NAHASDA) or (2) a new nontribal government entity authorized by one or 

more tribes to receive grants and provide affordable housing assistance for Native 

Americans under NAHASDA.

2

The PHAs we selected were the Alexandria Redevelopment and Housing Authority, the 

Berkeley Housing Authority, the New York City Housing Authority, and the Omaha 

Housing Authority. The national associations of PHAs we selected were the Council of 

Large Public Housing Authorities and the Public Housing Authorities Directors 

Association. The tribes and TDHEs we selected were the Interior Regional Housing 

Authority, the Navajo Housing Authority, the Northern Circle Indian Housing Authority, and 

the Penobscot Indian Nation Housing Authority. The associations of tribes and TDHEs we 

selected were the National American Indian Housing Council and the United Native 

American Housing Association.

Sequestration 

Reduced the Number 

of Households 

Receiving Rental 

Assistance, Housing 

Agencies’ Reserves, 

and Maintenance and 

Other Housing 

Services
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 75 GAO-14-452 2013 Sequestration

HUD data indicated that about 1.86 million very low-income households 

were receiving rental housing assistance through the Housing Choice 

Voucher program at the end of calendar year 2013, a decline of about 

41,000 (2.2 percent) compared to the end of calendar year 2012, 

primarily due to sequestration (see figure 9).3

 3

In March 2014, we reported that HUD estimated that the decline would be about 42,000, 

but final data were not yet available. See 

HUD officials told us that 

PHAs generally reduced the number of households that received 

assistance by not re-issuing vouchers made available by households that 

left the program rather than by terminating vouchers of current recipients.

GAO-14-44, 117. Very low-income households 

are those with incomes at or below 50 percent of the area median income. HUD provides 

funding to PHAs on a calendar year basis. These figures are based on data reported by 

PHAs. The data exclude 35 PHAs (1.5 percent of PHAs that administer vouchers), 

accounting for 13 percent of vouchers leased through the Housing Choice Voucher 

program in 2013, that have additional flexibility in how they spend their funding through 

the Moving to Work demonstration program. Through the demonstration program, these 

PHAs can change the proportion of funding that they allocate to vouchers over time, 

meaning we cannot determine whether declines in vouchers for these PHAs were due to 

sequestration or reallocation of funding between programs. Some of the funding for the 

program could only be used for new special-purpose vouchers, such as vouchers for 

veterans or the disabled. Because there were 26,000 new special-purpose vouchers in 

2013, the net decline in vouchers from 2012 that were renewed in 2013 was 67,000. 

The Number of 

Households Receiving 

Vouchers Declined Even 

As PHAs Used Voucher 

Reserves to Mitigate 

Effects
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 76 GAO-14-452 2013 Sequestration

Figure 9: Number of Households That Received Rental Assistance in the Housing Choice Voucher Program, January 2011 to 

December 2013

Note: The data in the figure exclude 35 PHAs (1.5 percent of PHAs that administer vouchers), 

accounting for 12 percent of vouchers, that have additional flexibility in how they spend their funding 

through the Moving to Work demonstration program. Because this demonstration program allows 

them to change the proportion of funding they allocate to vouchers over time we cannot determine 

whether declines in vouchers for these PHAs were due to sequestration or reallocation of funding 

between programs.

Some of the households participating in the rental assistance program 

also faced higher costs and other challenges in 2013 because some 

PHAs reacted to the sequestration cuts by increasing minimum rents, 

decreasing inspections of units, or reducing utility allowances.4

 4

Under statute, the highest minimum rent a PHA can impose is $50. See 42 U.S.C. § 

1437a(a)(3)(A). Statute also requires PHAs to inspect units when initially leased and 

annually, but regulations allow PHAs to inspect units more frequently than required. See 

42 § U.S.C. 1437f (o)(8); 24 C.F.R. § 982.405.

With their 

funding reduced, three of the PHAs we interviewed also reported taking 

steps to reduce costs they incurred when a household receiving rental 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 77 GAO-14-452 2013 Sequestration

assistance moved to an area covered by a different PHA or vice versa.5

Aggregate PHA voucher reserves decreased 46 percent from $1.3 billion 

in December 2012 to $709 million in September 2013. The reserves are 

funds these agencies have accumulated from prior appropriations and 

which they generally use to fill funding shortfalls if program expenses are 

higher than expected. PHAs used these reserves to mitigate some of the 

effect of sequestration on the number of vouchers they administered. 

However, PHA program reserves for vouchers had been reduced by $650 

million in the aggregate in 2012 because of reductions in HUD’s fiscal 

year 2012 funding.

For example, one PHA did not continue to provide rental assistance if a 

household moved to a higher-cost area. These PHA actions can make it 

more difficult for households to maintain their benefits when moving.

6 As a result of the reduced reserves from that action 

and the subsequent sequestration cuts in fiscal year 2013, PHAs will 

have reduced capacity to mitigate effects of any funding cuts in future 

years. As of the end of September 2013, the most recent month for which 

data were available, PHAs had on hand reserves adequate to fund an 

average of 0.5 months of voucher expenses, compared to 0.9 months in 

December 2012. Also by the end of September 2013, 165 PHAs had 

exhausted their reserves, compared with 84 PHAs in the same situation 

at the end of 2012.

 5

In general, a household can use its rental assistance voucher for a unit of its choice, 

including one located outside the jurisdiction of the PHA that initially issued the voucher. 

The receiving PHA can choose whether to absorb the household and pay for the voucher 

with its own funds, or to bill the initial PHA. However, HUD regulations allow a PHA to 

deny a household to move its voucher if the receiving PHA will not absorb the household 

and the initial PHA lacks sufficient funding for the move. See 24 C.F.R. § 982.314.

6

PHA reserves for vouchers were generally reduced to about 1 month of expenses. 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 78 GAO-14-452 2013 Sequestration

Although sequestration did not substantively reduce the number of units 

of public housing available, it necessitated that PHAs draw down on their 

reserves for these programs. None of the PHAs we interviewed told us 

that sequestration reduced the total number of units operated (either 

occupied or vacant). HUD data showed that the total number of public 

housing units operated declined from December 2012 to December 2013 

by about 6,000 (0.5 percent), to 1.151 million. HUD officials attributed this 

decline to the general deterioration of units due to funding in recent years 

being lower than needed to repair and maintain all units, which was 

extended and deepened by the effects of sequestration.

Stakeholder groups told us that the time necessary to prepare units for 

occupancy by new residents after others vacate has increased as a result 

of cuts in spending on maintenance staff, which also led to lower 

utilization of units and fewer people served. However, HUD data showed 

that the average occupancy rate for units remained at 96 percent 

throughout 2013.

Other steps PHAs took to reduce costs in the aftermath of sequestration 

also negatively affected families residing in public housing. For example, 

two PHAs we interviewed increased the case loads for their staff, and two 

PHAs reduced their office hours, both of which could reduce the level of 

service provided to families. In addition, two PHAs we interviewed took 

longer to complete maintenance or repairs, and two canceled some 

ancillary tenant programs, both of which HUD officials told us could 

negatively affect a PHA’s performance and scores in HUD’s assessments 

of resident satisfaction and management.

To mitigate the effects of sequestration, two PHAs reported that they 

drew down reserve funds maintained to address public housing operating 

fund shortfalls. PHAs need a reserve level equal to 4 months of operating 

expenses to obtain the highest possible score in HUD’s assessments of 

PHAs’ financial health. Although PHAs had $4.3 billion (about 8 months of 

total operating expenses) in such reserves as of the end of their fiscal 

The Number of Public 

Housing Units Did Not 

Substantively Decrease, 

but PHA Cost-Cutting 

Measures Affected 

Families and Public 

Housing Reserves 

Declined
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 79 GAO-14-452 2013 Sequestration

year in 2012, their level of reserves varied.7

Data reflecting the amount of reserves PHAs held at the end of calendar 

year 2013, which would reflect the effects of sequestration, were not 

available in time for this report. Further, PHAs whose fiscal year ended at 

the end of June or September were affected in the same fiscal year both 

by sequestration as well as a $750 million reduction in reserves in fiscal 

year 2012 that resulted from a reduction in HUD’s appropriation. This 

would prevent a determination of how much of any decline in reserves in 

the PHAs’ fiscal year was due to sequestration even after the data are 

available.

For example, 16 percent of 

PHAs, accounting for about 21 percent of units operated, had less than 4 

months of operating expenses in reserves. Further, 3 percent of PHAs, 

accounting for 6 percent of units operated, had less than 1 month of 

operating expenses in reserves. HUD officials told us that continued 

funding cuts could cause larger declines in the number of units of public 

housing operated as some PHAs deplete their reserves.

Representatives from all four of the tribes and TDHEs we interviewed told 

us that sequestration did not have a large effect on their activities in 2013 

because the entities typically carry over some previous year funding or 

still had reserves available from the predecessor to the IHBG program. As 

a result, they were able to draw on these funds to offset sequestration’s 

cuts and complete planned projects or activities in 2013. However, three 

said that sequestration would reduce the activities they could conduct in 

future years because they would be carrying over fewer funds at the end 

of fiscal year 2013. In addition, HUD officials told us that not all tribes and 

TDHEs had carry-over funding or reserves on which they could rely. Of 

the 361 tribes and TDHEs that received IHBG funding in 2013, 61 applied 

for and received interim funding from HUD prior to receiving their final 

funding, for which having no carry-over funding or reserves was a 

 7

PHAs report their level of reserves to HUD at the end of their respective fiscal years, 

which vary (end in different quarters). As a result, the amount of reserves in HUD’s data 

represented different points in time for different PHAs. PHAs with a fiscal year ending in 

one of the first three quarters of 2012 may still have been depleting their reserves as part 

of a $750 million reserve offset in 2012 after they reported their reserves at the end of 

their fiscal year in 2012, and thus their level of reserves would have been lower than the 

data show at the end of calendar year 2012. 

Carry-Over Funding and 

Reserves Mitigated the 

Effects of Sequestration 

for Some Indian Housing 

Block Grant Program 

Grantees
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 80 GAO-14-452 2013 Sequestration

requirement.8 According to a HUD official, the number of tribes and 

TDHEs without carry-over funding or reserves was likely higher than 61, 

as not all tribes and TDHEs that were eligible for interim funding may 

have applied.9

Representatives from tribes and TDHEs told us that the federal budget 

process for fiscal year 2013 created challenges for budget planning 

because they did not know the full amount of their grants under IHBG 

until several months into the calendar year. While HUD released 

approximately $39 million in interim funding from January through May to 

tribes and TDHEs that would have exhausted their reserves and carryover funding, recipients did not know their final fiscal year 2013 grant 

amount until May 20, 2013.10

Some IHBG recipients were more severely affected than others because 

sequestration reduced the portion of the IHBG grant formula that is based 

on estimated tribal needs. Under the IHBG formula, funding is first 

allocated for operating and modernizing units developed under the 

predecessor of the IHBG program, and the remaining funding is then 

allocated based on tribes’ needs for additional affordable housing.

By comparison, in 2012, HUD notified tribes 

and TDHEs of their final grant amount on January 18. HUD began to 

provide final funding to tribes and TDHE’s on June 18, 2013. Staff from 

two IHBG recipients and two tribal housing associations told us that the 

funding delays created challenges or uncertainty. For instance, according 

to one association, in some cases construction plans were delayed or 

halted or construction-related contracts had to be renegotiated.

11

 8

The number of tribes and TDHEs that received funding in 2013 is lower than the 571 

tribes eligible to receive IHBG funding because some tribes choose to have the same 

TDHE administer their funding and some tribes choose not to receive IHBG funding. 

As a 

result, the need-based component of the formula funding was reduced by 

9

Although HUD had data on carry-over funding for tribes and TDHEs, the agency did not 

have data on reserves maintained by these entities, which prevented a complete count. 

10In a letter of March 12, 2013, HUD notified tribes and TDHEs that their allocations would 

be reduced by 5 percent and that they would be notified at a later date as to the exact 

effect on their allocations.

11The amount of IHBG funding that Indian tribes receive is based on two components: (1) 

the cost of operating and modernizing units, and (2) need. The need component consists 

of seven factors that include the grant recipient’s American Indian/Alaskan Native 

population and the number of households within that population that fall in certain lowincome categories. 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 81 GAO-14-452 2013 Sequestration

9 percent to achieve the overall reduction in funding due to sequestration 

of 5 percent. Therefore, tribes whose funding primarily comes from the 

need-based component of the formula, because they have 

proportionately fewer housing units developed under the predecessor of 

the IHBG program, received a larger cut in funding. Officials from one 

IHBG recipient we interviewed said that sequestration exacerbated the 

decrease in the need portion for their small tribes, which consequently 

limited the services they provided to families.

Sequestration also contributed to HUD delaying reviews and decreasing 

services to tribes. For instance, although HUD regulations required a 

review of the formula to apportion IHBG grants by May 2012, HUD 

officials said they had not completed this review because of effects on the 

agency from lower funding in recent years, continuing resolutions, and 

sequestration cuts.12

In another example, staff from HUD’s Office of Native American Programs 

(ONAP) said the general hiring freeze the agency implemented in 

response to sequestration limited the office’s ability to replace several 

senior staff who retired. The staff had no estimate of when those 

vacancies would be filled. Moreover, representatives of two of the IHBG 

recipients and one tribal housing association told us of delays and other 

difficulties contacting HUD staff, which they attributed to turnover in 

ONAP and other effects of sequestration. For example, one tribe reported 

delays in receiving needed approvals on a new construction project from 

HUD has begun taking some actions to assess the 

formula, including establishing an Allocation Formula Negotiated 

Rulemaking Committee and holding public meetings with tribes in August 

and September 2013. HUD officials said they anticipate holding another 

meeting in spring 2014 to continue negotiating the IHBG formula but do 

not know when the new formula will be completed because of the 

numerous steps involved in the process.

 12HUD regulations required the IHBG formula to be reviewed by May 21, 2012 to 

determine if a subsidy is needed to operate and maintain NAHASDA units or if any 

changes are needed in respect to funding under the formula’s component for the cost of 

operating and modernizing units. See 24 C.F.R. § 1000.306(b). In addition, federal statute 

requires HUD to review IHBG regulations, which include regulations related to the IHBG 

formula, at least once every 7 years. See 25 U.S.C. § 4116(b)(2)(D). This requirement 

was enacted on October 14, 2008; as a result, the first review is required by October 14, 

2015. In December 2012 HUD updated the IHBG regulations, except the portions related 

to the formula. 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 82 GAO-14-452 2013 Sequestration

its ONAP regional office. According to the tribe, the delays hindered the 

project’s progress, resulting in protracted timelines.

In response to the budget reductions resulting from sequestration, HUD 

planned and implemented several department-wide personnel actions 

that applied to PIH.13 PIH employees, along with most other HUD 

employees, were furloughed for 5 days, saving PIH about $3.5 million. 

HUD initially planned to furlough employees for 7 days, but in August 

2013 HUD reduced the number of furlough days by using funds it initially 

planned to use to reorganize its Office of Multifamily Housing Programs 

and to close 16 of its 80 field offices.14 HUD also used transfers and 

reprogrammings between and within accounts to provide an additional 

$0.9 million for PIH to use to pay salaries and expenses. HUD further 

reduced PIH expenses for salaries, predominantly through a hiring freeze 

but also through additional means such as reduced overtime and 

monetary awards. Finally, HUD reduced non-salary expenses such as 

travel and training by $1.3 million.

To implement sequestration cuts for the Housing Choice Voucher 

program, HUD used a set-aside appropriation to provide supplemental 

funding to PHAs that would otherwise be required to terminate some 

families’ assistance and expanded a special team that offers technical 

assistance to PHAs. HUD officials told us that because HUD determines 

funding for individual PHAs by formula, based primarily on each PHA’s 

costs in the previous year, sequestration’s cuts were passed directly to 

the PHAs. HUD provides PHAs with a portion of the funding for which 

they are eligible based on HUD’s appropriation for the voucher program, 

which can be lower than the total formula eligibility of all PHAs. In 2012, 

HUD provided PHAs with 100 percent of their eligible amount. Because of 

sequestration, in 2013 HUD provided PHAs with 94 percent of the funding 

for which they were otherwise eligible, rather than the 99 percent they 

would have received in the absence of sequestration.

 13PIH funding for salaries and expenses was reduced from $200 million to $190 million by 

sequestration, prior to transfers and reprogrammings. 

14HUD officials said they were later able to fund some of the field office closures in part by 

using $1.7 million in unobligated fiscal year 2012 salaries and expenses funding.

HUD Took Personnel 

and Program Actions 

to Implement 

Sequestration and 

Limit Effects on 

Families

HUD Mitigated the Effects 

of Reduced Rental 

Assistance Funding by 

Providing Public Housing 

Agencies with 

Supplemental Funding 

and Technical Assistance
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 83 GAO-14-452 2013 Sequestration

Because HUD did not have a final fiscal year 2013 appropriation before 

the beginning of calendar year 2013, HUD obligated funding for the first 3 

months of 2013 at 98 percent of PHAs’ funding eligibility, which reflected 

the amount of funding the program had under the continuing resolution 

that funded HUD through March 27, 2013. HUD officials told us that PHAs 

may have spent funds at the 98 percent level for the first few months of 

the year. As a result, to reduce their expenditures for 2013 overall to the 

94 percent level, they likely reduced the number of vouchers they leased 

by the end of the year to an amount lower than they otherwise would 

have had to if they had known their final funding amount earlier.

PHAs are also eligible to receive funding for administrative expenses 

based on a formula involving the number of units they lease. As with the 

program funding, PHAs receive a portion of the funding for which they are 

eligible based on HUD’s appropriation for the voucher program. In recent 

years, that funding has been lower than the total formula eligibility of all 

PHAs. For example, in 2012, PHAs received 80 percent of their 

administrative expenses eligibility. In 2013, prior to sequestration HUD 

expected PHAs would receive 72 percent of their administrative expenses 

eligibility, but due to sequestration PHAs received 69 percent of their 

eligibility.

As in recent years, part of HUD’s fiscal year 2013 appropriation for the 

Housing Choice Voucher program contained a set aside of $103 million 

that HUD could provide to PHAs for four specified purposes.15 The 

appropriation act altered the purposes for which this funding could be 

used. Specifically, HUD could provide supplemental funding to PHAs that 

faced terminating some participating families from the rental assistance 

program due to insufficient funds (even after taking reasonable cost 

saving measures). HUD chose to prioritize this use of the set aside, and 

used $83 million to prevent terminations, which HUD officials stated was 

sufficient to prevent all terminations.16

 15The 2011 and 2012 set-aside amounts were $150 million and $103 million, respectively. 

To receive the supplemental 

funding, PHAs had to demonstrate that they would have had to terminate 

families from the program, immediately stop issuing new vouchers, and 

use all their reserves to fund vouchers. HUD provided the supplemental 

set-aside funding to 294 PHAs. Most PHAs we interviewed reported that 

16HUD officials told us the remaining $20 million will be used for other allowed purposes in 

fiscal year 2014. 
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 84 GAO-14-452 2013 Sequestration

the set-aside funding was helpful, but one association of PHAs noted that 

because most of the set aside was used to prevent terminations, less 

funding was available for the other purposes that had previously assisted 

PHAs in prior years, such as providing additional funding to PHAs 

experiencing significant increases in voucher costs from unforeseen 

circumstances.

In response to sequestration, PIH increased the number of staff (from 6 to 

13) assigned to its shortfall prevention team, which provides technical 

assistance and other support to PHAs that are at risk of needing to 

terminate families from the program. The team worked with staff from 

PIH’s Financial Management Center and regional offices to identify PHAs 

at risk of having a funding shortfall, which would require the PHA to 

terminate some families from the program. The team then worked with 

the at-risk PHAs to implement cost-cutting measures such as immediately 

ceasing to issue vouchers to families on their waiting lists, pulling 

previously issued vouchers from families that had not yet used them and 

returning those families to the waiting list, increasing minimum rents and 

reducing utility allowances. PIH officials told us that in some cases these 

actions were sufficient to prevent PHAs from having to terminate families 

from the program. If the team determined that a PHA was still at risk of a 

shortfall despite the cost-cutting measures, the team encouraged the 

PHA to apply for set-aside funds from HUD to protect currently assisted 

families from termination.
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 85 GAO-14-452 2013 Sequestration

HUD officials told us that the nature of the grant for operating public 

housing led to sequestration’s cuts being passed directly to PHAs and 

HUD had no flexibility to decide where to make cuts. As with the voucher 

program, eligibility for funding for public housing operating expenses is 

determined by formula. PHAs receive a portion of the funding for which 

they are eligible based on HUD’s appropriation for the public housing 

operating fund. The total amount of formula funding for PHAs for public 

housing operations effectively was $450 million lower than in 2012, before 

accounting for sequestration, a decline of almost 10 percent.17

Before sequestration, HUD funded PHAs in January and February of 

2013 at 92 percent of their public housing formula eligibility, based on the 

lower of the House and Senate versions of the appropriations bill. In 

March, HUD reduced the funding proration to 81 percent due to the 

likelihood of sequestration. After sequestration, because January and 

February funding had been provided at a level higher than the 82 percent 

proration for the year, HUD provided funding for April through December 

2013 at 79 percent of PHAs’ formula eligibility.

Sequestration reduced this funding by an additional $199 million, and the 

across-the board-rescission reduced funding by $8.5 million, resulting in a 

total decline in formula allocations of $658 million (14 percent) relative to 

fiscal year 2012. As a result, PHAs received 82 percent of their formula 

eligibility in total for fiscal year 2013. In 2012, PHAs received 95 percent 

of their formula eligibility.

To assist PHAs in implementing sequestration and reducing costs, PIH 

issued documents with frequently asked questions on sequestration and 

administrative streamlining related to sequestration. For example, PIH 

notified PHAs that it was lowering the reporting frequency for energy 

efficiency reports from quarterly to annually thereafter. PIH also noted it 

would conduct fewer on-site and remote monitoring reviews, prioritizing 

PHAs with higher risk and significant problems.

 17In 2012, HUD’s appropriation for the fund was $3.962 billion, $664 million lower than in 

fiscal year 2011 ($4.626 billion), but the appropriation also gave HUD the authority to 

include up to $750 million in PHAs’ excess reserves in its formula allocations, for a total of 

$4.712 billion. HUD’s appropriation for the fund in the 2013 continuing resolution of $4.262 

billion reflected HUD’s 2012 funding level plus an additional $300 million but without the 

authority to offset against excess reserves, thus resulting in a net decrease in HUD’s 

formula allocations to PHAs of $450 million, before sequestration. 

HUD Assisted PHAs in 

Implementing Significant 

Public Housing Funding 

Cuts by Providing 

Guidance and Reducing 

Some Administrative 

Requirements
Appendix IV: Fiscal Year 2013 Sequestration at 

the Office of Public and Indian Housing

Page 86 GAO-14-452 2013 Sequestration

HUD officials told us they considered applying broad waivers of 

administrative requirements to assist PHAs in reducing costs, such as 

reducing the frequency of required income verifications for residents with 

fixed incomes. However, they decided that HUD did not have authority to 

change some of the requirements and for others would have had to go 

through the full regulatory rulemaking process, which includes a public 

comment period, and thus decided not to proceed with these actions.

HUD officials told us they had little flexibility in implementing 

sequestration for IHBG because funding through the program is 

determined by formula. HUD sent letters to tribes on March 12, 2013, 

notifying them of sequestration and that their funding likely would be 

reduced. However, HUD did not notify recipients of their final formula 

funding amounts until May 20, 2013, for two reasons. First, the full-year 

appropriation providing funding for federal government programs was not 

enacted until March 26, 2013. Second, the processes that HUD must 

follow to finalize the IHBG grant funding formula took about 60 days to 

complete. HUD sent grant agreements to most tribes on June 11, 2013, 

and funds were available to tribes beginning in mid-June, depending on 

how quickly the tribes approved and returned the agreements. In 2012, 

funds were available to tribes beginning in February.

For additional information, contact Daniel Garcia-Diaz at (202) 512-8678 

or garciadiazd@gao.gov.

Appropriation Timing and 

Administrative Processes 

Led to Delays in Providing 

Indian Housing Block 

Grant Funding to Grant 

Recipients

GAO Contact
Appendix V: Objectives, Scope, and 

Methodology

Page 87 GAO-14-452 2013 Sequestration

This report examines: (1) the effects of fiscal year 2013 sequestration on 

the operations, performance, and services to the public for selected 

components within federal agencies;1 and (2) how selected components 

planned and prepared for and implemented fiscal year 2013 

sequestration. This report builds off of our previously issued report that 

evaluated how 23 federal agencies, including the Departments of 

Defense (DOD), Education, Health and Human Services (HHS), 

Homeland Security (DHS), and Housing and Urban Development (HUD), 

prepared for and implemented the fiscal year 2013 sequestration at the 

agency level, and the effects of sequestration on agencies’ operations, 

performance, and services to the public.2

To achieve these objectives, we selected six case study components 

within federal agencies for review. In selecting components, we sought to 

cover a significant share of the $85.3 billion in funds ordered for 

sequestration on March 1, 2013, including both direct spending and 

discretionary appropriations, as well as programs with a high level of 

interaction with the public. We also sought to cover a range of federal 

missions (e.g., education, health, and defense) and the different program 

delivery tools the federal government uses to achieve its missions, such 

as grants, vouchers, contracts, loans and loan guarantees, and direct 

services. Based on these criteria, which are discussed in more detail 

below, we selected the following components:

• DOD’s Operation and Maintenance accounts;

• DOD’s Procurement accounts;

• DHS’s U.S. Customs and Border Protection (CBP);

• Education’s Office of Elementary and Secondary Education (OESE); 

• HHS’s Centers for Medicare & Medicaid Services (CMS); and

• HUD’s Public and Indian Housing (PIH).

 1

For the purposes of this report, the term “component” refers to an agency, bureau, or 

operating division within a cabinet-level department (e.g., the U.S. Customs and Border 

Protection within the Department of Homeland Security). When we refer to “agency,” we 

are referring to a cabinet-level department or an independent agency (e.g., the 

Environmental Protection Agency).

2

GAO, 2013 Sequestration: Agencies Reduced Some Services and Investments, While 

Taking Certain Actions to Mitigate Effects, GAO-14-244 (Washington, D.C.: Mar.6, 2014). 

This report covers 23 of the 24 federal agencies specified in the Chief Financial Officers 

Act. We excluded the Department of Veterans Affairs, because its accounts were exempt 

from sequestration.

Appendix V: Objectives, Scope, and

Methodology

Case Study Selection
Appendix V: Objectives, Scope, and 

Methodology

Page 88 GAO-14-452 2013 Sequestration

We used a multistep process to select these components. First, we began 

the selection process by considering the 24 federal agencies identified in 

the Chief Financial Officers (CFO) Act of 1990, as amended. These 

agencies accounted for approximately 98 percent of the total sequestered 

funding in fiscal year 2013. They also accounted for the majority of 

federal spending in 13 of the federal government’s 17 broad mission 

areas, or budget functions.3 We excluded from consideration the 

Department of Veterans Affairs, because its accounts were exempt from 

sequestration.4 We excluded the Department of State and the Agency for 

International Development (USAID), because we determined that the 

effects of reductions at these agencies were less likely to directly affect 

the American public than reductions at the other agencies under 

consideration. The Department of State and USAID were both included in 

our government-wide review.5

We ranked the 21 remaining CFO Act agencies based on actual fiscal 

year 2012 enacted discretionary budget authority for fiscal year 2012 and 

eliminated from consideration the bottom 11.6

 3

Based on OMB data for actual obligations in fiscal year 2012. The budget function 

classification system provides a comprehensive and consistent means to capture federal 

activity and group budgetary resources according to mission area or “national need.”

These “national needs” are grouped into 17 broad areas for analyzing and understanding 

the budget. Three additional categories—Net Interest, Allowances, and Undistributed 

Offsetting Receipts—do not address specific “national needs” but are included in the 

budget function classification system so that the total of all functions sums to the budget 

totals. For more information on budget functions, see GAO, Federal Budget: Agency

Obligations by Budget Function and Object Classification for Fiscal Year 2003, 

Within the remaining 10 

agencies, we identified the two components with the largest amount of 

sequestrable funds based on OMB’s March 1 calculations. To select case 

studies that provide broad coverage of government functions and 

potentially different degrees of centralized or disbursed decision making, 

GAO-04-834 (Washington, D.C.: June 25, 2004). 

4

2 U.S.C. § 905(b). 

5

GAO-14-244. 

6

These data were used as a proxy for determining those agencies with the largest amount 

of sequestered funding, because data on the amount of sequestered funds by agency 

were not readily available in a format that we could analyze at the time that we began the 

selection process. Once such data were available, we compared the results of our 

analysis with the results when using the amount of sequestered funding by agency as 

calculated by OMB. We determined that our final selections were broadly consistent with 

the results when using OMB data on the amount sequestered and that no further 

adjustments were needed.
Appendix V: Objectives, Scope, and 

Methodology

Page 89 GAO-14-452 2013 Sequestration

we chose not to include two nondefense components from the same 

agency.

We used a matrix to determine that certain criteria were satisfied. 

Specifically, we used OMB data on budget functions to ensure that we 

had a range of federal missions (e.g., education, health, and national 

defense) and OMB object class data to ensure that we had a range of 

different program delivery tools the federal government uses to achieve 

its missions.7

Overall, these six case study components accounted for roughly $48 

billion, or more than 56 percent, of the total sequestration ordered on 

March 1, including roughly 77 percent of sequestered defense spending 

and almost 36 percent of sequestered nondefense spending. Results 

from selected case studies, however, cannot be generalized. We issued 

the results of our review of DOD’s Operation and Maintenance and 

Procurement accounts along with our review of DOD’s Research, 

Development, Test, and Evaluation account separately in November.

We used data from OMB’s March 1 sequestration report to 

ensure that the selected case study components represented both 

sequestered direct spending and discretionary appropriations. If multiple 

components met our criteria, we gave preference to components that 

were determined to have a higher impact on services to the public.

8

Within the four nondefense components, we selected a limited number of 

programs, activities, or offices for more in-depth data gathering and 

analysis.9

 7

We excluded from consideration the five budget functions— International Affairs (150), 

General Government (800), Net Interest (900), Allowances (920), Undistributed Offsetting 

Receipts (950)—because we determined these were less likely to directly affect the public, 

or, in the cases of Undistributed Offsetting Receipts and Allowances, because no data for 

them were reported in fiscal year 2012. The major object classes are: Personnel, 

Compensation, and Benefits (employee salaries and benefits); Contractual Services and 

Supplies (rent, services, supplies and materials); Grants and Fixed Charges (grants, 

insurance, and interest); and Acquisition of Assets (equipment, land and structures, 

investments, and loans). 

See table 1 at the beginning of this report for an overview of the 

selected programs. We selected these programs based on the size of 

8

GAO, Sequestration: Observations on the Department of Defense’s Approach in Fiscal 

Year 2013, GAO-14-177R (Washington, D.C.: Nov. 7, 2013).

9

For information on the scope and methodology of our review of select DOD components, 

see GAO-14-177R.

Program Selection
Appendix V: Objectives, Scope, and 

Methodology

Page 90 GAO-14-452 2013 Sequestration

their budget, level of interaction with the public, the availability of 

measurable estimates of the effects of sequestration, and other factors. 

Similar to our criteria for selecting case study components, we also 

sought to cover a range of the different program delivery tools the federal 

government uses to achieve its missions, such as grants, vouchers, 

contracts, and direct services. For details on how we selected programs 

and activities within individual case study components, see appendixes I 

through IV.

To address our objectives, we reviewed documents previously obtained 

for our agency-level review, such as a list of sequestered PPAs, total 

discretionary and direct spending funding levels for fiscal year 2013, and 

total amount sequestered.10

We reviewed additional documents—provided by agency officials at the 

selected components—related to planning for and implementing 

sequestration in fiscal year 2013. These documents included guidance 

issued to internal subcomponents or to external program partners and 

recipients. We also reviewed relevant planning documentation, when 

available, demonstrating the components’ analysis of alternatives for 

implementing spending reductions. We analyzed budget and financial 

data for fiscal year 2013 to identify spending reductions at the PPA level 

and documentation of reprogramming, transfer, and other funding actions 

used in response to the fiscal year 2013 sequestration. We did not assess 

the appropriateness of actions that agencies or components took to 

implement sequestration, such as transfer and reprogramming actions.

We also reviewed reprogramming restrictions 

and transfer authorities identified as part of the information request and 

supporting documentation of how these authorities were used, if at all, in 

response to sequestration. In addition, we reviewed additional agency 

documents, such as operating and spending plans for fiscal year 2013 

and illustrative examples of sequestration-related guidance and formal 

communications with agencies’ employees, unions, and other 

stakeholders.

We interviewed agency officials from each component, including officials 

in budget and management offices as well as officials in program offices. 

In discussing the effects of sequestration, we asked agency officials to 

 10GAO-14-244.

Data Collection and 

Analysis
Appendix V: Objectives, Scope, and 

Methodology

Page 91 GAO-14-452 2013 Sequestration

isolate the effects of sequestration from other factors such as operating 

under a continuing resolution (CR) and the rescissions enacted in the 

Consolidated and Further Continuing Appropriations Act, 2013, to the 

degree possible. We recognize that these other factors could also 

contribute to budget uncertainty and affect component’s operations, 

performance, and services to the public. For example, because CRs only 

provide funding until an agreement is reached on final appropriations, 

they create uncertainty for components about both when they will receive 

their final appropriation and what level of funding ultimately will be 

available. Our past work has shown that an agency may delay hiring or 

contracts during the CR period, potentially reducing the level of services 

agencies provide and increasing costs.

We asked agencies to identify the source of any data provided and a 

description of any known limitations or purposes for which the data being 

provided should not be used. We reviewed agencies’ supporting 

documents to assess the reasonableness of their data and any 

quantitative estimates of the effects of sequestration on agency 

operations, performance, and services to the public. Specifically, we 

reviewed the data and methodology used to calculate the estimates and 

we reported the estimates when they met our evidentiary standards. In 

some cases we found it appropriate to report agency estimates, as long 

as we also included significant contextual information and information 

about limitations regarding the estimates. In other cases, if agency 

explanations of the data and methodologies used to estimate the effects 

of sequestration indicated significant uncertainty surrounding the 

estimates, we did not report the estimates. To further assess the reliability 

of the data provided by agencies we interviewed knowledgeable officials 

as needed. We determined that the data were reliable for the purposes 

used in this report.

To obtain further information on the effects of fiscal year 2013 

sequestration on selected components’ services to the public, we 

interviewed select program partners that assist the components in 

carrying out their missions, recipients of the components’ support and 

services, or their representatives.

• For CBP, we interviewed representatives from the Airports Council 

International, Airlines for America, the American Association of State 

Highway and Transportation Officials, and the American Trucking 

Association.

• For CMS, we interviewed officials from a purposeful sample of 

Medicare contractors—two Medicare Administrative Contractors and a 
Appendix V: Objectives, Scope, and 

Methodology

Page 92 GAO-14-452 2013 Sequestration

Zone Program Integrity Contractor—and state survey agencies to 

obtain information on CMS’s planning and implementation of 

sequestration, as well as effects to CMS’s fee-for-service operations, 

CMS program integrity activities, and state survey and certification 

oversight activities.

• For OESE, we interviewed officials from seven school districts that 

receive Title I or Impact Aid grants. We selected these school districts 

based on variation in the grant amounts they received, each district’s 

reliance on grant funding, and geographic location. In addition, we 

interviewed two national associations representing states and districts 

receiving Title I and Impact Aid grants and six state Title I grant 

administrators.

• For PIH, we interviewed officials from four local public housing 

agencies, which we selected based on their size, geographic location, 

and use of set-aside funding to avoid terminations in their voucher 

program, two national associations, and the National Low Income 

Housing Coalition.

For more information on the program partners and recipients we spoke 

with and how they were selected, see appendixes I to IV.

To examine the extent to which selected components identified their 

PPAs in accordance with the criteria set out in section 256(k)(2) of the 

Balanced Budget and Emergency Deficit Control Act of 1985, as 

amended, we reviewed a purposeful sample of five PPAs from each of 

the four nondefense components discussed in this report. In selecting 

PPAs, we sought to include some of the PPAs that fund programs and 

activities within case study components selected for more in-depth 

review. However, we also considered the source used to define the PPA, 

whether the PPA contained direct spending or discretionary 

appropriations, the types of activities the PPA supports, and instances in 

which the agency reported that a PPA was defined at the account level. 

Therefore, some of the PPAs selected do not align with the programs and 

activities selected for more in-depth review. Table 8 provides a list of the 

PPAs that we reviewed.
Appendix V: Objectives, Scope, and 

Methodology

Page 93 GAO-14-452 2013 Sequestration

Table 8: Overview of Select Programs, Projects, and Activities Traced to Source

Department and bureau Selected programs, projects, and activities

Department of Homeland 

Security, U.S. Customs and 

Border Protection

Border Security Inspections and Trade Facilitation

Border Security and Control Between Ports of Entry

COBRA Passenger Inspection Fee

Construction and Facilities Management/Facilities 

Construction and Sustainment

Air and Marine Operations/Salaries and Expenses

Department of Health and 

Human Services, Centers for 

Medicare & Medicaid Services

Federal Hospital Insurance Trust Fund/Benefit 

Payments/Hospital Insurance 

Program Management/Program Operations/Other

Program Management/State Survey and Certification

Health Care Fraud and Abuse Control 

Account/Medicare

Health Care Fraud and Abuse Control 

Account/Medicare Integrity Program/Funding Subject 

to Special Rule

Department of Education, Office 

of Elementary and Secondary 

Education

Education for the Disadvantaged/Grants to Local 

Educational Agencies: Basic Grants

Education for the Disadvantaged/State Agency 

Programs: Migrant 

Impact Aid/Payment for Federally Connected Children: 

Basic Support Payments

School Improvement Programs/Education for Native 

Hawaiians

Safe Schools and Citizenship Education/Elementary 

and Secondary School Counseling

Department of Housing and 

Urban Development, Public and 

Indian Housing

Section 8 Contract Renewals

Tenant Based Rental Assistance 

Account/Administrative Fees 

Public Housing Operating Fund Account/Operating 

Subsidy 

Native American Housing Block Grants 

Account/Formula Grants 

Native American Housing Block Grants Account/Loan 

Guarantee Credit Subsidy 

Source: GAO analysis of agency information and applicable laws.
Appendix V: Objectives, Scope, and 

Methodology

Page 94 GAO-14-452 2013 Sequestration

Because we used a nonrandom, purposeful sample, the results of our 

analysis of the selected PPAs cannot be generalized to other PPAs within 

the component or department. While we assessed the extent to which 

selected components identified their PPAs in accordance with the criteria 

set out in section 256(k)(2) of BBEDCA, we did not assess each PPA for 

compliance with other sections of BBEDCA. For example, we did not 

assess the extent to which a PPA was properly characterized as 

“discretionary appropriations” or “mandatory spending” for the purposes 

of implementing sequestration. While we reviewed components’ operating 

plans and other budgetary data, we did not test components’ financial 

systems to determine that the component implemented sequestration at 

the PPA level as reported.

We conducted this performance audit from April 2013 to May 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix VI: Glossary of Budget Terms

Page 95 GAO-14-452 2013 Sequestration

Appropriation: Budget authority to incur obligations and to make 

payments from the Treasury for specified purposes. An appropriation act 

is the most common means of providing appropriations; however, 

authorizing and other legislation itself may provide appropriations.

Annual appropriation: A provision of law appropriating funds 

enacted annually to provide budget authority to incur obligations and 

make payments from the Treasury for specified purposes.

Supplemental appropriation: A provision of law appropriating funds 

in addition to those already enacted in an annual appropriation act. 

Supplemental appropriations provide additional budget authority, 

usually in cases where the need for funds is too urgent to be 

postponed until enactment of the regular appropriation bill. 

Supplemental appropriations may sometimes include items not 

appropriated in the regular bills due to a lack of timely authorizations.

Advance appropriation: Budget authority that becomes available 1 

or more fiscal years after the fiscal year for which the appropriation 

was enacted. For example, a fiscal year 2012 appropriation could 

provide that budget authority for a specified activity would not become 

available until October 1, 2012 (the start of fiscal year 2013) or later. 

For sequestration, funding enacted as advance appropriations—

available in fiscal year 2013—was included in the sequestrable base.

Availability: Budget authority that is available for incurring new 

obligations.

Budget account: An item for which appropriations are made in any 

appropriation act and, for items not provided for in appropriation acts, the 

term means an item for which there is a designated budget account 

identification code number in the President’s budget.

Budget authority: Authority provided by federal law to enter into financial 

obligations that will result in immediate or future outlays involving federal 

government funds.

Duration

One-year appropriation: Budget authority available for obligation 

only during a specific fiscal year that expires at the end of that fiscal 

year.

Multiyear appropriation: Budget authority available for a fixed period 

of time in excess of 1 fiscal year. This authority generally takes the 

Appendix VI: Glossary of Budget Terms
Appendix VI: Glossary of Budget Terms

Page 96 GAO-14-452 2013 Sequestration

form of 2-year, 3-year, and so forth availability but may cover periods 

that do not coincide with the start or end of a fiscal year.

No-year appropriation: Budget authority that remains available for 

obligation for an indefinite period of time. A no-year appropriation is 

usually identified by language such as “to remain available until 

expended.”

Timing of legislative action

Permanent appropriation: Budget authority that is available as the 

result of previously enacted legislation and is available without further 

legislative action. Many programs with permanent appropriations are 

exempt from sequestration (see “mandatory” below).

Determination of amount

Definite appropriation: Budget authority that is stated as a specified 

sum at the time the appropriation is enacted. This type of authority, 

whether in an appropriation act or other law, includes authority stated 

as “not to exceed” a specified amount.

Indefinite appropriation: Budget authority that, at time of enactment, 

is for an unspecified amount, such as entitlement programs where 

obligations depend on the number of eligible beneficiaries receiving 

benefits. Also for fee-funded accounts in which total obligations 

depend on demand for the good or service provided by the program 

(e.g., programs funded by regulatory fees). Indefinite appropriations 

may be appropriated as all or part of the amount of proceeds from the 

sale of financial assets, the amount necessary to cover obligations 

associated with payments, the receipts from specified sources—the 

exact amount of which is determinable only at some future date—or it 

may be appropriated as “such sums as may be necessary” for a given 

purpose. For sequestration, unless otherwise specified in law, 

agencies were directed to implement sequestration for accounts with 

indefinite authority by reducing the remaining obligations from fiscal 

year 2013 sequestrable resources by a uniform percentage.

Availability for new obligations

Expired budget authority: Budget authority that is no longer 

available to incur new obligations but is available for an additional 5 

fiscal years for disbursement of obligations properly incurred during 

the budget authority’s period of availability.

Budget function: The functional classification system is a way of 

grouping budgetary resources so that all budget authority and outlays of 
Appendix VI: Glossary of Budget Terms

Page 97 GAO-14-452 2013 Sequestration

on-budget and off-budget federal entities and tax expenditures can be 

presented according to the national needs being addressed. National 

needs are grouped in 17 broad areas to provide a coherent and 

comprehensive basis for analyzing and understanding the budget.

Carryover balance (unexpended balance): The sum of the obligated 

and unobligated balances.

Continuing resolution: An appropriation act that provides budget 

authority for federal agencies, specific activities, or both, to continue in 

operation for a specific period of time when Congress and the President 

have not completed action on the regular appropriation acts by the 

beginning of the fiscal year.

Direct spending: Budget authority that is provided in laws other than 

appropriation acts and entitlement authority (for example, Supplemental 

Nutrition Assistance, Medicare, and veterans’ pension programs). Direct 

spending, also referred to as mandatory spending, includes payment of 

interest on the public debt, and nonentitlements such as payments to 

states from Forest Service receipts. For sequestration, many mandatory 

programs are exempt. But for those that are not exempt, the PPAs for 

mandatory accounts are generally delineated in the President’s budget for 

fiscal year 2013.

Discretionary spending: Outlays from budget authority that is provided 

in, and controlled by, appropriations acts.

Expended funds: Funds that have actually been disbursed or outlaid.

Mandatory spending: See definition of direct spending above.

Obligated balance (obligated funds): The amount of obligations already 

incurred for which payment has not yet been made. Technically, the 

obligated balance is the unliquidated obligations. Budget authority that is 

available for a fixed period expires at the end of its period of availability, 

but the obligated balance of the budget authority remains available to 

liquidate obligations for 5 additional fiscal years. At the end of the fifth 

fiscal year, the account is closed and any remaining balance is canceled. 

Budget authority available for an indefinite period may be canceled and 

its account closed if (1) it is specifically rescinded by law or (2) the head 

of the agency concerned (or the President) determines that the purposes 

for which the appropriation was made have been carried out and 
Appendix VI: Glossary of Budget Terms

Page 98 GAO-14-452 2013 Sequestration

disbursements have not been made from the appropriation for 2 

consecutive years.

Obligation: An obligation is a definite commitment that creates a legal 

liability of the government for the payment of goods and services ordered 

or received, or a legal duty on the part of the United States that could 

mature into a legal liability by virtue of actions of another party.

Program, Project, or Activity (PPA): An element within a budget 

account. The programs, projects, and activities as delineated in the 

appropriation act or accompanying report for the relevant fiscal year 

covering that account. For accounts not included in appropriation acts, 

PPAs are delineated in the most recently submitted President’s budget or 

congressional budget justifications, specifically the program and financing 

schedules that the President provides in the “Detailed Budget Estimates”

in the budget submission for the relevant fiscal year.

Reprogramming: Reprogramming is the shifting of funds from one 

program to another within an appropriation or fund account for purposes 

other than those contemplated at the time of appropriation. The authority 

to reprogram is implicit in an agency’s responsibility to manage its funds; 

no statutory authority is necessary but the agency may be required to 

notify the congressional appropriations committees, the authorizing 

committees, or both of any reprogramming action.

Rescission: Legislation enacted by Congress that cancels budget 

authority previously enacted before the authority would otherwise expire. 

For sequestration, the Consolidated and Further Continuing 

Appropriations Act, 2013 included across-the-board rescissions, which 

were applied to full-year appropriations for fiscal year 2013 (in addition to 

the reductions required by the Joint Committee sequestration).

Sequestration: In general, the permanent cancellation of budgetary 

resources under a presidential order. For fiscal year 2013, the uniform 

percentage reduction is applied to all programs, projects, and activities 

within a budget account, with some program exemptions and special 

rules.

Spending authority: A specific form of budget authority that authorizes 

obligations and outlays using offsetting collections credited to an 

expenditure account. Spending authority is typically provided in 

authorizing laws and in some cases appropriation acts limit obligations.
Appendix VI: Glossary of Budget Terms

Page 99 GAO-14-452 2013 Sequestration

Transfer: The shifting of funds between accounts is called a transfer. An 

agency may not transfer funds unless it has statutory authority to do so.

Unobligated balance (unobligated funds): The portion of budget 

authority that has not yet been obligated. For an appropriation account 

that is available for a fixed period, the budget authority expires after the 

period of availability ends and is no longer available for new obligations, 

but its unobligated balance remains available for 5 additional fiscal years 

for recording and adjusting obligations properly chargeable to the 

appropriations period of availability. For example, an expired, unobligated 

balance remains available until the account is closed to record previously 

unrecorded obligations or to make upward adjustments in previously 

under-recorded obligations (such as contract modifications properly within 

scope of the original contract). At the end of the fifth fiscal year, the 

account is closed and any remaining balance is canceled. For a no-year 

account, the unobligated balance is carried forward indefinitely until (1) 

specifically rescinded by law or (2) the head of the agency concerned (or 

the President) determines that the purposes for which the appropriation 

was made have been carried out and disbursements have not been made 

from the appropriation for 2 consecutive years.

For more information on budget terms and concepts, see GAO, A 

Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: September 2005) (published in cooperation with the 

Secretary of the Treasury and the Directors of OMB and the 

Congressional Budget Office).
Appendix VII: U.S. Customs and Border 

Protection Organization Chart and Fiscal Year 

2013 Funding Levels

Page 100 GAO-14-452 2013 Sequestration

In fiscal year 2013, CBP employed about 60,000 employees, including 

CBP officers, Border Patrol agents, agriculture specialists, and Air 

Interdiction agents (pilots), among others.

Established geographically by region, the Office of Field Operations 

(OFO) and its respective 20 field offices around the United States 

distribute key policies and procedures to field staff. Field offices provide 

guidance to their regional ports and ensure the dissemination and 

implementation of CBP guidelines. For fiscal year 2013, OFO was 

congressionally directed to maintain 21,775 officers.a OFO’s postsequestration fiscal year 2013 funding represented about 27 percent of 

CBP’s fiscal year 2013 post-sequestration funding.

a: Explanatory Statement, Consolidated and Further Continuing 

Appropriations Act, 2013, 159 Cong. Rec. S1287, S1549 (daily ed. Mar. 

11, 2013).

Fiscal year 2013 funding prior to sequestration: $3.2 billionb

Sequestered amount: $156.3 million

Post-Sequestration funding: $3.05 billion

b: According to CBP’s budget office, the $3.2 billion represents funding 

for CBP’s Border Security Inspections and Trade Facilitation Programs, 

Projects, and Activities (PPA). Funding for OFO comprises the majority of 

this PPA.

CBP collects COBRA user fees for air passenger customs and vessel 

passenger customs inspections, among other things. COBRA fee 

collections fund activities involving CBP officers ensuring that all carriers, 

passengers, and their personal effects entering the U.S. are compliant 

with customs laws. According to CBP, fees, such as the COBRA fee, play 

an integral role in CBP’s planning and budget process because they 

reimburse CBP’s Salaries and Expenses account, for certain expenses, 

such as overtime for CBP officers, that comprise about 30 percent of that 

account. The COBRA account post-sequestration fiscal year 2013 

Appendix VII: U.S. Customs and Border 

Protection Organization Chart and Fiscal 

Year 2013 Funding Levels

U.S. Customs and 

Border Protection 

(CBP) 

Commissioner’s 

Office

Office of Field 

Operations

OFO Fiscal Year 2013 

Discretionary Funding:
Appendix VII: U.S. Customs and Border 

Protection Organization Chart and Fiscal Year 

2013 Funding Levels

Page 101 GAO-14-452 2013 Sequestration

funding represented about 3.5 percent of CBP’s total fiscal year 2013 

post-sequestration funding.

Fiscal year 2013 funding prior to sequestration: $419.4 millionc

Sequestered amount: $27 million

Post-Sequestration: $392.4 million

c: This amount represents the fiscal year 2013 budget authority as stated 

in the explanatory statement accompanying the Consolidated and Further 

Continuing Appropriations Act, 2013. The OMB baseline established in its 

March 1 report for this account was $529.4 million.

The U.S. Border Patrol (USBP) is responsible for patrolling nearly 6,000 

miles of Mexican and Canadian international land borders and over 2,000 

miles of coastal waters surrounding the Florida Peninsula and the island 

of Puerto Rico. For fiscal year 2013, USBP was legislatively mandated to 

maintain 21,370 agents across its 20 sectors.d USBP’s post-sequestration 

fiscal year 2013 funding represented about 31 percent of CBP’s fiscal 

year 2013 post-sequestration funding.

Fiscal year 2013 funding prior to sequestration: $3.7 billione

Sequestered amount: $180.7 million

Post-Sequestration funding: $3.52 billion

d: Pub. L. No. 113-6, 127 Stat. 198, 345 (2013).

e: According to CBP’s budget office, the $3.7 billion represents funding 

for CBP’s Border Security and Control between Ports of Entry PPA. 

Funding for USBP comprises the majority of this PPA.

COBRA Fiscal Year 2013 

Direct Spending :

Office of Border 

Patrol

USBP Fiscal Year 2013 

Discretionary Funding:
Appendix VIII: GAO Contacts and Staff 

Acknowledgments

Page 102 GAO-14-452 2013 Sequestration

Michelle Sager, Director, Strategic Issues, (202) 512-6806 or 

sagerm@gao.gov.

Edda Emmanuelli Perez, Managing Associate General Counsel, (202) 

512-2853 or emmanuellipereze@gao.gov.

For issues related to the Department of Housing and Urban Development: 

Daniel Garcia-Diaz, Director, Financial Markets and Community 

Investment, (202) 512-8678 or garciadiazd@gao.gov.

For issues related to the Department of Defense: John Pendleton, 

Director, Defense Capabilities and Management, (202) 512-3489 or 

pendletonj@gao.gov, or Michael Sullivan, Director, Acquisition and 

Sourcing Management, (202) 512-4841 or sullivanm@gao.gov.

For issues related to the Department of Education: Melissa Emrey-Arras, 

Director, Education, Workforce, and Income Security, (617) 788-0534 or 

emreyarrasm@gao.gov.

For issues related to the Department of Health and Human Services: 

Kathleen King, Director, Health Care, (202) 512-7114 or kingk@gao.gov.

For issues related to the Department of Homeland Security: David C. 

Maurer, Director, Homeland Security and Justice, (202) 512-9627 or 

maurerd@gao.gov.

The following staff contributed to this report: Elizabeth Curda and Melissa 

Wolf (Assistant Directors); Katherine Lenane (Assistant General 

Counsel); Thomas McCabe (Analyst-in-Charge); Margaret Adams, Shari 

Brewster, Robert Gebhart, Lauren Grossman, Donna Miller, Laurel 

Plume, Alan Rozzi, and Walter Vance.

In addition, staff that contributed to sections of this report on selected 

agencies are listed in table 9.

Appendix VIII: GAO Contacts and Staff 

Acknowledgments

GAO Contacts

Staff 

Acknowledgments
Appendix VIII: GAO Contacts and Staff 

Acknowledgments

Page 103 GAO-14-452 2013 Sequestration

Table 9: Names of GAO Staff Contributing to Information on Selected Components

Department of Education, Office 

of Elementary and Secondary 

Education

George Scott (Managing Director), Gale Harris 

(Assistant Director), Susan Chin, (Analyst-in-Charge), 

Nora Boretti, Sarah Cornetto, Nisha Hazra, and David 

Reed

Department of Health and 

Human Services, Centers for 

Medicare & Medicaid Services

Lori Achman (Assistant Director), Rebecca Abela 

(Analyst-in-Charge), and George Bogart

Department of Homeland 

Security, U.S. Customs and 

Border Protection

Kathryn H. Bernet (Assistant Director), Meg Ullengren 

(Analyst-in-Charge), Frances Cook, Michele Fejfar, 

Eric Hauswirth, Tracey King, and Michelle Sahlhoff 

Department of Housing and 

Urban Development, Public and 

Indian Housing

Cody Goebel (Assistant Director), Ethan Wozniak, 

(Analyst-in-Charge), Rudy Chatlos, Elizabeth Jimenez, 

Lisa Moore, and Jessica Sandler

Source: GAO.

(451064)
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